<PAGE>

                                                                      EXHIBIT 13

                           PORTIONS OF PSB GROUP, INC.
                          ANNUAL REPORT TO SHAREHOLDERS

<PAGE>

                                PSB GROUP, INC.

                      -------------------------------------

                          CONSOLIDATED FINANCIAL REPORT

                                DECEMBER 31, 2004

<PAGE>

PSB GROUP, INC.

<TABLE>
<CAPTION>
                                                                        CONTENTS
<S>                                                                     <C>
REPORT LETTER                                                              1

CONSOLIDATED FINANCIAL STATEMENTS

  Balance Sheet                                                            2

  Statement of Operations                                                  3

  Statement of Stockholders' Equity                                        4

  Statement of Cash Flows                                                  5

  Notes to Consolidated Financial Statements                              6-28
</TABLE>

<PAGE>

                                                            PLANTE & MORAN, PLLC
                                                                       Suite 500
                                                            2601 Cambridge Court
[PLANTE MORAN LOGO]                                       Auburn Hills, MI 48326
                                                               Tel: 248.375.7100
                                                               Fax: 248.375.7101
                                                                 plantemoran.com

             Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders
PSB Group, Inc.

We have audited the accompanying consolidated balance sheet of PSB Group, Inc.
as of December 31, 2004 and 2003 and the related consolidated statements of
operations, stockholders' equity, and cash flows for each year in the three-year
period ended December 31, 2004. These consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of PSB
Group, Inc. as of December 31, 2004 and 2003 and the consolidated results of
their operations and cash flows for each year in the three-year period ended
December 31, 2004, in conformity with accounting principles generally accepted
in the United States of America.

                                                       PLANTE & MORAN, PLLC

Auburn Hills, Michigan
February 21, 2005

                                                                     A member of
                                                                      [MRI LOGO]
                         A worldwide association of Independent accounting firms

<PAGE>

PSB GROUP, INC.

                                                      CONSOLIDATED BALANCE SHEET
                                           (000s OMITTED, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                            December 31
                                                                                      ------------------------
                                                                                         2004           2003
                                                                                      ---------      ---------
<S>                                                                                   <C>            <C>
                                          ASSETS

Cash and due from banks                                                               $  14,253      $  14,308
Securities - Available for sale (Note 3)                                                 91,125         47,619

Loans (Note 4)                                                                          338,674        326,262
Less allowance for possible loan losses (Note 4)                                         (3,394)        (3,887)
                                                                                      ---------      ---------
          Net loans                                                                     335,280        322,375

Loans held for sale                                                                       2,388            627
Bank premises and equipment (Note 5)                                                     10,618          9,213
Accrued interest receivable                                                               2,144          1,525
Goodwill (Note 1)                                                                         4,100          4,100
Other assets (Note 9)                                                                     1,434          1,744
                                                                                      ---------      ---------

          Total assets                                                                $ 461,342      $ 401,511
                                                                                      =========      =========

                             LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
   Deposits:
       Noninterest-bearing                                                            $  57,479      $  53,412
       Interest-bearing (Note 6)                                                        353,653        297,576
                                                                                      ---------      ---------
          Total deposits                                                                411,132        350,988

   Federal funds purchased                                                                    -          2,420
   FHLB borrowings (Note 7)                                                               5,000          5,000
   Accrued taxes, interest, and other liabilities (Note 9)                                2,229          2,092
                                                                                      ---------      ---------

          Total liabilities                                                             418,361        360,500

STOCKHOLDERS' EQUITY (Notes 10, 14, And 17)
   Common stock:
       Authorized - 5,000,000 shares, no par value
       Issued and outstanding - 2,885,073 shares                                         17,560         17,560
   Retained earnings                                                                     25,331         23,104
   Accumulated other comprehensive income (Note 1)                                           90            347
                                                                                      ---------      ---------

          Total stockholders' equity                                                     42,981         41,011
                                                                                      ---------      ---------

          Total liabilities and stockholders' equity                                  $ 461,342      $ 401,511
                                                                                      =========      =========
</TABLE>

   See Notes to Consolidated    PSB Group, Inc. / 2004 Annual Report
     Financial Statements.

2
<PAGE>

PSB GROUP, INC.

                                            CONSOLIDATED STATEMENT OF OPERATIONS
                                           (000s OMITTED, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                            Year Ended December 31
                                                                    --------------------------------------
                                                                       2004          2003          2002
                                                                    ----------    ----------    ----------
<S>                                                                 <C>           <C>           <C>
INTEREST INCOME
    Loans, including fees                                           $   20,780    $   19,762    $   20,688
    Securities:
       Taxable                                                           1,183         1,433         2,404
       Tax-exempt                                                          619           873         1,109
    Federal funds sold                                                      51            28           220
                                                                    ----------    ----------    ----------

           Total interest income                                        22,633        22,096        24,421

INTEREST EXPENSE
    Deposits                                                             5,546         5,214         6,588
    Short-term borrowings                                                  285           249           228
                                                                    ----------    ----------    ----------

           Total interest expense                                        5,831         5,463         6,816
                                                                    ----------    ----------    ----------

NET INTEREST INCOME - Before provision (benefit) for loan losses        16,802        16,633        17,605

PROVISION (BENEFIT) FOR LOAN LOSSES (Note 4)                             1,200             -          (800)
                                                                    ----------    ----------    ----------
NET INTEREST INCOME - After provision (benefit) for loan losses         15,602        16,633        18,405

OTHER OPERATING INCOME
    Service charges on deposit accounts                                  2,477         2,356         1,597
    Gain on sale of mortgages                                            1,216         1,463         1,125
    Gain on sale of available-for-sale securities                            9           163            76
    Other income                                                         2,124         2,053         1,870
                                                                    ----------    ----------    ----------
           Total other operating income                                  5,826         6,035         4,668

OTHER OPERATING EXPENSES
    Salaries and employee benefits (Note 8)                              8,267         9,550         9,173
    Occupancy costs (Note 5)                                             3,065         2,769         2,433
    Legal and professional                                               1,145         1,428         1,158
    Other operating expenses                                             3,170         3,251         2,970

                                                                    ----------    ----------    ----------

           Total other operating expenses                               15,647        16,998        15,734
                                                                    ----------    ----------    ----------
INCOME - Before federal income taxes                                     5,781         5,670         7,339
FEDERAL INCOME TAXES (Note 9)                                            1,563         1,457         2,050
                                                                    ----------    ----------    ----------

NET INCOME                                                          $    4,218    $    4,213    $    5,289
                                                                    ==========    ==========    ==========
PER SHARE DATA
    Weighted average shares outstanding                              2,885,073     3,103,497     3,148,191
    Basic earnings                                                  $     1.46    $     1.36    $     1.68
</TABLE>

   See Notes to Consolidated PSB    PSB Group, Inc. / 2004 Annual Report
     Financial Statements.

                                                                               3
<PAGE>

PSB GROUP, INC.

                                  CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                           (000s OMITTED, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                               Accumulated
                                                                                                  Other            Total
                                                 Number of        Common        Retained      Comprehensive    Stockholders'
                                                  Shares          Stock         Earnings      Income (Loss)       Equity
                                                 ---------      ---------      ---------      -------------    -------------
<S>                                              <C>            <C>            <C>            <C>              <C>
BALANCE - January 1, 2002                        2,862,204      $  19,786      $  21,645        $     791        $  42,222

Comprehensive income (Note 1):
    Net income                                           -              -          5,289                -            5,289
    Change in unrealized  gain on securities
       available for sale                                -              -              -              127              127
                                                                                                                 ---------
           Total comprehensive income                                                                                5,416

Cash dividends - $0.70 per share                         -              -         (2,165)               -           (2,165)
Common stock dividend (Note 12)                    285,987          3,908         (3,908)               -                -
                                                 ---------      ---------      ---------        ---------        ---------
BALANCE - December 31, 2002                      3,148,191         23,694         20,861              918           45,473

Comprehensive income (Note 1):
    Net income                                           -              -          4,213                -            4,213
    Change in unrealized gain on securities
       available for sale                                -              -              -             (571)            (571)
                                                                                                                 ---------
           Total comprehensive income                                                                                3,642

Repurchase of common stock (Note 10)              (263,118)        (6,134)             -                -           (6,134)
Cash dividends - $0.64 per share                         -              -         (1,970)               -           (1,970)
                                                 ---------      ---------      ---------        ---------        ---------
BALANCE - December 31, 2003                      2,885,073         17,560         23,104              347           41,011

Comprehensive income (Note 1):
    Net income                                           -              -          4,218                -            4,218
    Change in unrealized gain on securities
       available for sale                                -              -              -             (257)            (257)
                                                                                                                 ---------
           Total comprehensive income                                                                                3,961

Cash dividends - $0.69 per share                         -              -         (1,991)               -           (1,991)
                                                 ---------      ---------      ---------        ---------        ---------
BALANCE - December 31, 2004                      2,885,073      $  17,560      $  25,331        $      90        $  42,981
                                                 =========      =========      =========        =========        =========
</TABLE>

Book value per share is $14.90, $14.22, and $14.44 at December 31, 2004, 2003,
and 2002, respectively.

   See Notes to Consolidated    PSB Group, Inc. / 2004 Annual Report
     Financial Statements.

4
<PAGE>

PSB GROUP, INC.

                                            CONSOLIDATED STATEMENT OF CASH FLOWS
                                                                  (000s OMITTED)

<TABLE>
<CAPTION>
                                                                                            Year Ended December 31
                                                                                   ---------------------------------------
                                                                                     2004            2003           2002
                                                                                   ---------      ---------      ---------
<S>                                                                                <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                                                                     $   4,218      $   4,213      $   5,289
    Adjustments to reconcile net income to net cash from operating activities:
       Depreciation and amortization                                                   1,238          1,136          1,014
       Provision for loan loss                                                         1,200              -           (800)
       Accretion and amortization of securities                                          116            802            683
       Deferred income taxes                                                               -             75            500
       Gain on sale of available-for-sale securities                                      (9)          (163)           (76)
       Loss on sale of assets                                                              -              -              2
       Origination and purchase of loans held for sale                               (67,721)       (70,357)       (54,161)
       Sale of loans held for sale                                                    65,960         73,356         56,254
       (Increase) decrease in accrued interest receivable                               (619)           536            139
       (Increase) decrease in other assets                                               442           (776)          (321)
       Increase (decrease) in accrued interest payable and other liabilities             137            (34)           (92)
                                                                                   ---------      ---------      ---------
           Net cash provided by operating activities                                   4,962          8,788          8,431

CASH FLOWS FROM INVESTING ACTIVITIES
    Purchase of securities available for sale                                        (73,555)       (15,558)       (63,021)
    Proceeds from maturities of securities available for sale                         29,107         41,705         37,807
    Proceeds from sale of securities available for sale                                  446         12,228          6,563
    Net increase in loans                                                            (14,105)       (41,405)       (14,556)
    Capital expenditures                                                              (2,643)          (956)        (1,391)
    Proceeds from sale of fixed assets                                                     -             34             79
                                                                                   ---------      ---------      ---------
           Net cash used in investing activities                                     (60,750)        (3,952)       (34,519)

CASH FLOWS FROM FINANCING ACTIVITIES
    Net increase (decrease) in time deposits                                           3,854          1,141        (15,596)
    Net increase in other deposits                                                    56,290          9,067         10,821
    Net increase (decrease) in federal funds purchased                                (2,420)        (6,790)         9,210
    Purchase of common stock                                                               -         (6,134)             -
    Cash dividends                                                                    (1,991)        (1,970)        (2,165)
                                                                                   ---------      ---------      ---------

           Net cash provided by (used in) financing activities                        55,733         (4,686)         2,270
                                                                                   ---------      ---------      ---------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                     (55)           150        (23,818)

CASH AND CASH EQUIVALENTS - Beginning of year                                         14,308         14,158         37,976
                                                                                   ---------      ---------      ---------

CASH AND CASH EQUIVALENTS - End of year                                            $  14,253      $  14,308      $  14,158
                                                                                   =========      =========      =========

SUPPLEMENTAL INFORMATION - Cash paid for
    Interest                                                                       $   5,809      $   5,297      $   6,952
    Income taxes                                                                       1,190          1,393          1,548
</TABLE>

   See Notes to Consolidated    PSB Group, Inc. / 2004 Annual Report
     Financial Statements.

                                                                               5
<PAGE>

PSB GROUP, INC.

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2004, 2003, AND 2002

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

            BASIS OF PRESENTATION AND CONSOLIDATION - The consolidated financial
            statements include the accounts of PSB Group, Inc. (the
            "Corporation") and its wholly owned subsidiaries, Peoples State Bank
            (the "Bank") and PSB Capital, Inc. (Capital). PSB Title Insurance
            Agency, Inc. (PSB) and Universal Mortgage Company (UMC) are wholly
            owned subsidiaries of Peoples State Bank, Inc. All significant
            intercompany transactions are eliminated in consolidation.

            PSB Group, Inc. was formed on February 28, 2003 as a bank holding
            company for the purpose of owning Peoples State Bank pursuant to a
            plan of reorganization adopted by the Bank and its stockholders.
            Pursuant to the reorganization, each share of Peoples State Bank
            stock held by existing stockholders of the Bank was exchanged for
            three shares of common stock of PSB Group, Inc. The reorganization
            had no consolidated financial statement impact. Share amounts for
            all prior periods presented have been restated to reflect the
            reorganization.

            USE OF ESTIMATES - The accounting and reporting policies of PSB
            Group, Inc. conform to accounting principles generally accepted in
            the United States of America. Management is required to make
            significant estimates (such as the allowance for possible loan
            losses, deferred taxes, foreclosed assets, valuation of intangible
            assets, and goodwill) and assumptions that affect the amounts
            reported in the consolidated financial statements and accompanying
            notes. Actual results could differ from these estimates and
            assumptions.

            NATURE OF OPERATIONS - The Corporation provides full-service banking
            through 10 branch offices and five loan origination offices to the
            Michigan communities of Wayne, Oakland, Macomb, and Genesee
            counties.

            SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK - Most of the
            Corporation's activities are with customers located within Michigan.
            Note 3 discusses the types of securities in which the Corporation
            invests. Note 4 discusses the types of lending in which the
            Corporation engages. The Corporation does not have any significant
            concentrations to any one customer, but does have a significant
            concentration of lending to non-residential commercial real estate
            entities.

            CASH AND CASH EQUIVALENTS - For purposes of the consolidated
            statement of cash flows, cash and cash equivalents include cash and
            balances due from banks, federal funds sold, and securities
            purchased under agreements to resell, all of which had original
            maturities of 90 days or less.

                      PSB Group, Inc. / 2004 Annual Report

6
<PAGE>

PSB GROUP, INC.

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2004, 2003, AND 2002

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

            SECURITIES - Debt securities that management has the positive intent
            and the ability to hold to maturity are classified as "held to
            maturity" and recorded at amortized cost. Securities not classified
            as held to maturity or trading, including equity securities with
            readily determinable fair values, are classified as "available for
            sale" and are recorded at fair value, with unrealized gains and
            losses, net of related deferred income taxes, excluded from earnings
            and reported in other comprehensive income.

            Purchase premiums and discounts are recognized in interest income
            using the interest method over the terms of the securities. Declines
            in the fair values of held-to-maturity and available-for-sale
            securities below their cost that are deemed to be other than
            temporary are reflected in earnings as realized losses. Gains and
            losses on the sale of securities are recorded on the trade date and
            are determined using the specific identification method.

            LOANS - The Corporation grants mortgage, commercial, and consumer
            loans to customers. Loans are reported at their outstanding unpaid
            principal balances, adjusted for charge offs, the allowance for loan
            losses, and any deferred fees or costs on originated loans. Interest
            income is accrued on the unpaid principal balance. Loan origination
            fees, net of certain direct origination costs, are recognized as an
            adjustment of the related loan yield using the interest method.

            The accrual of interest on loans is discontinued at the time the
            loan is 90 days delinquent unless the credit is well-secured and in
            the process of collection. In all cases, loans are placed on
            nonaccrual or charged off at an earlier date if principal or
            interest is considered doubtful.

            All interest accrued but not collected for loans that are placed on
            nonaccrual or charged off is reversed against interest income. The
            interest on these loans is accounted for on the cash basis or cost
            recovery method, until qualifying for return to accrual. Loans are
            returned to accrual status when all the principal and interest
            amounts contractually due are brought current and future payments
            are reasonably assured.

            LOANS HELD FOR SALE - Loans originated and intended for sale in the
            secondary market are carried at the lower of cost or estimated fair
            value in the aggregate. Net unrealized losses, if any, are
            recognized in a valuation allowance by charges to income.

                      PSB Group, Inc. / 2004 Annual Report

                                                                               7
<PAGE>

PSB GROUP, INC.

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2004, 2003, AND 2002

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

            ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is
            established as losses are estimated to have occurred through a
            provision for loan losses charged to earnings. Loan losses are
            charged against the allowance when management believes the
            uncollectibility of a loan balance is confirmed. Subsequent
            recoveries, if any, are credited to the allowance.

            The allowance for loan losses is evaluated on a regular basis by
            management and is based on management's periodic review of the
            collectibility of the loans in light of historical experience, the
            nature and volume of the loan portfolio, adverse situations that may
            affect the borrower's ability to repay, estimated value of any
            underlying collateral, and prevailing economic conditions. This
            evaluation is inherently subjective as it requires estimates that
            are susceptible to significant revision as more information becomes
            available.

            The allowance consists of specific, general, and unallocated
            components. The specific components relate to loans that are
            classified as either doubtful, substandard, or special mention. For
            such loans that are also classified as impaired, an allowance is
            established when the discounted cash flows (or collateral value or
            observable market price) of the impaired loan is lower than the
            carrying value of that loan. The general component covers
            nonclassified loans and is based on historical loss experience
            adjusted for qualitative factors. An unallocated component is
            maintained to cover uncertainties that could affect management's
            estimate of probable losses. The unallocated component of the
            allowance reflects the margin of imprecision inherent in the
            underlying assumptions used in the methodologies for estimating
            specific and general losses in the portfolio.

            A loan is considered impaired when, based on current information and
            events, it is probable that the Corporation will be unable to
            collect the scheduled payments of principal and interest when due
            according to the contractual terms of the loan agreement. Factors
            considered by management in determining impairment include payment
            status, collateral value, and the probability of collecting
            scheduled principal and interest payments when due. Loans that
            experience insignificant payment delays and payment shortfalls
            generally are not classified as impaired. Management determines the
            significance of payment delays and payment shortfalls on a
            case-by-case basis, taking into consideration all of the
            circumstances surrounding the loan and the borrower, including
            length of the delay, the reasons for the delay, the borrower's prior
            payment record, and the amount of the shortfall in relation to the
            principal and interest owed. Impairment is measured on a
            loan-by-loan basis for commercial and construction loans by either
            the present value of expected future cash flows discounted at the
            loan's effective interest rate, the loan's obtainable market price,
            or the fair value of the collateral if the loan is collateral
            dependent.

                      PSB Group, Inc. / 2004 Annual Report

8
<PAGE>

PSB GROUP, INC.

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2004, 2003, AND 2002

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         Large groups of homogenous loans are collectively evaluated for
         impairment. Accordingly, the Corporation does not separately identify
         individual consumer and residential loans for impairment disclosures.

         OFF-BALANCE-SHEET INSTRUMENTS - In the ordinary course of business, the
         Corporation has entered into commitments to extend credit, including
         commitments under credit card arrangements, commercial letters of
         credit, and standby letters of credit.

         In November 2002, the FASB issued Interpretation No. 45 (FIN 45),
         Guarantor's Accounting and Disclosure Requirements for Guarantees,
         Including Indirect Guarantees of Indebtedness of Others, which
         elaborates on the disclosures to be made by a guarantor about its
         obligations under certain guarantees issued. It also clarifies that a
         guarantor is required to recognize, at the inception of a guarantee, a
         liability for the fair value of the obligation undertaken in issuing
         the guarantee. The initial recognition and measurement provisions of
         this Interpretation have been applied on a prospective basis to
         guarantees issued or modified after December 31, 2002. However, the
         value of such guarantees is immaterial and the adoption of this
         Standard did not have a material effect on the Corporation's
         consolidated financial statements.

         FORECLOSED ASSETS - Assets acquired through, or in lieu of, loan
         foreclosure are held for sale and are initially recorded at fair value
         at the date of the foreclosure, establishing a new cost basis.
         Subsequent to foreclosure, valuations are periodically performed by
         management and the assets are carried at the lower of carrying amount
         or fair value less cost to sell. Revenue and expenses from operations
         and changes in the valuation allowance are included in net expenses
         from foreclosed assets.

         BANK PREMISES AND EQUIPMENT - Land is carried at cost. Premises and
         equipment are stated at cost, less accumulated depreciation and
         amortization. Depreciation, computed on the straight-line method, is
         charged to operations over the estimated useful lives of the
         properties. Leasehold improvements are amortized over the terms of
         their respective leases or the estimated useful lives of the
         improvements, whichever is shorter.

         INCOME TAXES - Deferred income tax assets and liabilities are
         determined using the liability (or balance sheet) method. Under this
         method, the net deferred tax asset or liability is determined based on
         the tax effects of the various temporary differences between the book
         and tax bases of the various balance sheet assets and liabilities and
         gives current recognition to changes in tax rates and laws.

                      PSB Group, Inc. / 2004 Annual Report

                                                                               9

<PAGE>

PSB GROUP, INC.

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2004, 2003, AND 2002

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         EARNINGS PER COMMON SHARE - Basic earnings per share represents income
         available to common stockholders divided by the weighted-average number
         of common shares outstanding during the period.

         COMPREHENSIVE INCOME - Accounting principles generally require that
         revenue, expenses, gains, and losses be included in net income. Certain
         changes in assets and liabilities, however, such as unrealized gains
         and losses on available-for-sale securities, are reported as a separate
         component of the equity section of the balance sheet. Such items, along
         with net income, are components of comprehensive income.

         The components of accumulated other comprehensive income and related
         tax effects are as follows (000s omitted):

<TABLE>
<CAPTION>
                                     2004       2003       2002
                                    ------     ------     ------
<S>                                 <C>        <C>        <C>
Unrealized holding gains on
   available-for-sale securities    $  137     $  526     $1,391

Tax effect                              47        179        473
                                    ------     ------     ------
Accumulated other comprehensive
   income                           $   90     $  347     $  918
                                    ======     ======     ======
</TABLE>

         DERIVATIVE FINANCIAL INSTRUMENTS - In April 2003, the FASB issued SFAS
         No. 149 (SFAS 149), Amendment of Statement 133 on Derivative
         Instruments and Hedging Activities. This statement amends and clarifies
         financial accounting and reporting for derivative instruments,
         including certain embedded derivatives, and for hedging activities
         under SFAS 133. SFAS 149, as with SFAS 133, requires that all
         derivative instruments be recorded on the balance sheet at their fair
         value. Changes in the fair value of derivatives are recorded each
         period in current earnings or other comprehensive income, depending on
         whether a derivative is designated as part of a hedge transaction and,
         if it is, the type of hedge transaction. SFAS 149 is effective for
         contracts entered into or modified after June 30, 2003, and for hedging
         relationships designated after June 30, 2003. Adoption of this standard
         did not have a material effect on the Corporation's consolidated
         financial statements.

                      PSB Group, Inc. / 2004 Annual Report

10
<PAGE>

PSB GROUP, INC.

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2004, 2003, AND 2002

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         GOODWILL - Goodwill results from prior business acquisitions and
         represents the excess of the purchase price over the fair value of
         acquired tangible assets and liabilities and identifiable intangible
         assets. Goodwill is not amortized but it is assessed at least annually
         for impairment, and any such impairment will be recognized in the
         period identified.

         STOCK-BASED COMPENSATION - In December 2004, the Financial Accounting
         Standards Board issued Statement of Financial Accounting Standards No.
         123 (revised 2004), Share-Based Payment (SFAS 123R), which requires
         entities to measure the cost of employee services received in exchange
         for an award of equity instruments based on the grant-date fair value
         of the award (with limited exceptions). The cost is recognized as an
         expense over the period during which the employee is required to
         provide service in exchange for the award, which is usually the vesting
         period. The scope of SFAS 123R will include the PSB Group, Inc. 2004
         Stock Compensation Plan. As required by SFAS 123R, the Corporation will
         estimate the fair value of all stock options on each grant date, using
         an appropriate valuation approach such as the Black-Scholes option
         pricing model. The provisions of this statement will be effective for
         the Corporation beginning with its fiscal year ending 2005. The
         Corporation is currently evaluating the impact this new standard will
         have on its financial position, results of operations, or cash flows.

NOTE 2 - RESTRICTIONS ON CASH AND AMOUNTS DUE FROM BANKS

         The Corporation is required to maintain average balances on hand or
         with the Federal Reserve Bank. At December 31, 2004 and 2003, these
         reserve balances amounted to $3,433,000 and $5,036,000, respectively.

                      PSB Group, Inc. / 2004 Annual Report

                                                                              11
<PAGE>

PSB GROUP, INC.

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2004, 2003, AND 2002

NOTE 3 - SECURITIES

         The amortized cost and estimated market value of securities are as
         follows (000s omitted):

<TABLE>
<CAPTION>
                                                                             2004
                                                         --------------------------------------------
                                                                       Gross       Gross    Estimated
                                                         Amortized  Unrealized  Unrealized    Market
                                                           Cost        Gains      Losses      Value
                                                         ---------  ----------  ----------  ---------
<S>                                                      <C>        <C>         <C>         <C>
Available-for-sale securities:
  U.S. Treasury securities and obligations of U.S.
    government corporations and agencies                  $68,619    $    54     $  (185)    $68,488
  Obligations of state and political
    subdivisions                                           19,670        261          (1)     19,930
  Corporate debt securities                                 1,000          8           -       1,008
  Other                                                     1,699          -           -       1,699
                                                          -------    -------     -------     -------

         Total available-for-sale securities              $90,988    $   323     $  (186)    $91,125
                                                          =======    =======     =======     =======
</TABLE>

<TABLE>
<CAPTION>
                                                                             2003
                                                         --------------------------------------------
                                                                       Gross       Gross    Estimated
                                                         Amortized  Unrealized  Unrealized    Market
                                                           Cost        Gains      Losses      Value
                                                         ---------  ----------  ----------  ---------
<S>                                                      <C>        <C>         <C>         <C>
Available-for-sale securities:
  U.S. Treasury securities and obligations of U.S.
     government corporations and agencies                 $27,195     $  178     $  (14)     $27,359
  Obligations of state and political subdivisions          17,274        362         (9)      17,627
  Corporate debt securities                                 1,000          9          -        1,009
  Other                                                     1,624          -          -        1,624
                                                          -------     ------     ------      -------

       Total available-for-sale securities                $47,093     $  549     $  (23)     $47,619
                                                          =======     ======     ======      =======
</TABLE>

                      PSB Group, Inc. / 2004 Annual Report

12
<PAGE>

PSB GROUP, INC.

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2004, 2003, AND 2002

NOTE 3 - SECURITIES (CONTINUED)

         The amortized cost and estimated market value of securities at December
         31, 2004, by contractual maturity, are shown below. Expected maturities
         will differ from contractual maturities because issuers may have the
         right to call or prepay obligations with or without call or prepayment
         penalties (000s omitted):

<TABLE>
<CAPTION>
                                            Available for Sale
                                         ------------------------
                                         Amortized
                                            Cost     Market Value
                                         ---------   ------------
<S>                                      <C>         <C>
Due in one year or less                   $20,247       $20,227
Due in one through five years              53,804        53,865
Due after five years through ten years      3,107         3,149
Due after ten years                         4,136         4,185
                                          -------       -------
          Total                            81,294        81,426

Federal agency pools                        7,995         8,000
Other                                       1,699         1,699
                                          -------       -------
          Total                           $90,988       $91,125
                                          =======       =======
</TABLE>

         Proceeds from the sale of available-for-sale securities during 2004,
         2003, and 2002 were $446,000, $12,228,000, and $6,563,000,
         respectively.

                      PSB Group, Inc. / 2004 Annual Report

                                                                              13


<PAGE>

PSB GROUP, INC.

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2004, 2003, AND 2002

NOTE 3 - SECURITIES (CONTINUED)

         Information pertaining to securities with gross unrealized losses at
         December 31, 2004 and 2003, aggregated by investment category and
         length of time that individual securities have been in a continuous
         loss position, follows (000s omitted):

<TABLE>
<CAPTION>
                                                                       2004
                                                -------------------------------------------------
                                                Less Than Twelve Months     Over Twelve Months
                                                -----------------------   -----------------------
                                                   Gross                     Gross
                                                Unrealized                Unrealized
                                                  Losses     Fair Value     Losses     Fair Value
                                                ----------   ----------   ----------   ----------
<S>                                             <C>          <C>          <C>          <C>
Available-for-sale securities:
  U.S. Treasury securities and obligations
    of U.S. government corporations
    and agencies                                 $   185      $52,301        $  -        $   -

  Obligations of state and political
    subdivisions                                       1        1,288           -            -

  Corporate debt securities                            -            -           -            -

  Other                                                -            -           -            -
                                                 -------      -------        ----        -----
             Total available-for-sale
                securities                       $   186      $53,589        $  -        $   -
                                                 =======      =======        ====        =====
</TABLE>

<TABLE>
<CAPTION>
                                                                       2003
                                                -------------------------------------------------
                                                Less Than Twelve Months     Over Twelve Months
                                                -----------------------   -----------------------
                                                   Gross                     Gross
                                                Unrealized                Unrealized
                                                  Losses     Fair Value     Losses     Fair Value
                                                ----------   ----------   ----------   ----------
<S>                                             <C>          <C>          <C>          <C>
Available-for-sale securities:
  U.S. Treasury securities and obligations
    of U.S. government corporations and
    agencies                                      $    8       $2,765       $    6       $4,994

  Obligations of state and political
    subdivisions                                       9        4,991            -            -

  Corporate debt securities                            -            -            -            -

  Other                                                -            -            -            -
                                                  ------       ------       ------       ------
             Total available-for-sale
                    securities                    $   17       $7,756       $    6       $4,994
                                                  ======       ======       ======       ======
</TABLE>

                      PSB Group, Inc. / 2004 Annual Report

14
<PAGE>

PSB GROUP, INC.

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2004, 2003, AND 2002

NOTE 3 - SECURITIES (CONTINUED)

         At December 31, 2004 and 2003, securities having a carrying value of
         $2,067,913 and $2,009,844 (market value of $2,058,125 and $2,027,500),
         respectively, were pledged to secure public deposits, repurchase
         agreements, and for other purposes required by law.

NOTE 4 - LOANS

         A summary of the balances of loans at December 31, 2004 and 2003 is as
         follows (000s omitted):

<TABLE>
<CAPTION>
                                      2004        2003
                                   ----------   ---------
<S>                                <C>          <C>
Mortgage loans on real estate:
   Residential 1-4 family          $  94,898    $ 103,864
   Commercial                        141,845      114,167
   Construction                       17,573       15,496
   Second mortgages                    7,666        3,440
   Equity lines of credit             11,011        8,887
                                   ---------    ---------
            Total mortgage loans     272,993      245,854
Commercial loans                      48,046       54,203
Consumer installment loans            18,312       27,024
                                   ---------    ---------
            Subtotal                 339,351      327,081
Less allowances for loan losses       (3,394)      (3,887)
Net deferred loan fees                  (677)        (819)
                                   ---------    ---------

            Loans - Net            $ 335,280    $ 322,375
                                   =========    =========
</TABLE>

                      PSB Group, Inc. / 2004 Annual Report

                                                                              15

<PAGE>

PSB GROUP, INC.

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2004, 2003, AND 2002

NOTE 4 - LOANS (CONTINUED)

         An analysis of the allowance for loan losses is as follows (000s
         omitted):

<TABLE>
<CAPTION>
                                             2004      2003      2002
                                           --------  --------  --------
<S>                                        <C>       <C>       <C>
Balance - Beginning of year                $ 3,887   $ 4,632   $ 5,585
Loan loss provision (reduction credited
   to operations)                            1,200         -      (800)
Loan losses                                 (2,318)   (1,553)   (2,162)
Loan loss recoveries                           625       808     2,009
                                           -------   -------   -------
Balance - End of year                      $ 3,394   $ 3,887   $ 4,632
                                           =======   =======   =======
As a percentage of total loans                1.00      1.19      1.60
                                           =======   =======   =======
</TABLE>

         The following is a summary of information pertaining to impaired loans
         (000s omitted):

<TABLE>
<CAPTION>
                                                          2004    2003
                                                         ------  ------
<S>                                                      <C>     <C>
Impaired loans without a valuation allowance             $  901  $  693

Impaired loans with a valuation allowance                 1,396     803
                                                         ------  ------
                Total impaired loans                     $2,297  $1,496
                                                         ======  ======
Valuation allowance related to impaired loans            $  632  $  446
                                                         ======  ======
Total non-accrual loans                                  $2,297  $1,496
                                                         ======  ======
Total loans past due 90 days or more and still accruing  $  376  $1,189
                                                         ======  ======
</TABLE>

<TABLE>
<CAPTION>
                                                  2004    2003    2002
                                                 ------  ------  ------
<S>                                              <C>     <C>     <C>
Average investment in impaired loans             $1,363  $1,300  $2,202
                                                 ======  ======  ======
Interest income recognized on impaired loans     $   11  $   16  $   83
                                                 ======  ======  ======
Interest income recognized on a cash basis on
    impaired loans                               $   13  $   15  $   75
                                                 ======  ======  ======
</TABLE>

         No additional funds are committed to be advanced in connection with
         impaired loans.

                      PSB Group, Inc. / 2004 Annual Report

16
<PAGE>

PSB GROUP, INC.

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2004, 2003, AND 2002

NOTE 5 - BANK PREMISES AND EQUIPMENT

         Bank premises and equipment at December 31, 2004 and 2003 consisted of
         the following (000s omitted):

<TABLE>
<CAPTION>
                                                      2004      2003
                                                    --------  --------
<S>                                                 <C>       <C>
Land                                                $  2,323  $  1,874
Buildings and improvements                             8,265     8,187
Construction in process                                1,307         -
Furniture, fixtures, and equipment                     9,343     8,611
                                                    --------  --------

                 Total bank premises and equipment    21,238    18,672

Less accumulated depreciation and amortization        10,620     9,459
                                                    --------  --------

                 Net carrying amount                $ 10,618  $  9,213
                                                    ========  ========
</TABLE>

         Depreciation expense totaled $1,238,000, $1,136,000, and $1,014,000
         during 2004, 2003, and 2002, respectively.

         Pursuant to the terms of noncancelable lease agreements in effect at
         December 31, 2004 pertaining to banking premises and equipment, future
         minimum rent commitments under various operating leases are as follows
         (000s omitted):

<TABLE>
<S>                    <C>
   2005                $   453
   2006                    309
   2007                    169
   2008                    124
   2009                    124
Thereafter                 378
                       -------
             Total     $ 1,557
                       =======
</TABLE>

         Total rent expense for the years ended December 31, 2004, 2003, and
         2002 amounted to $450,000, $348,000, and $269,000, respectively.

         As of December 31, 2004, the Corporation had commitments totaling
         approximately $398,000 for the construction of a new branch location.

                      PSB Group, Inc. / 2004 Annual Report

                                                                              17
<PAGE>

PSB GROUP, INC.

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2004, 2003, AND 2002

NOTE 6 - DEPOSITS

         Interest-bearing deposits at December 31, 2004 and 2003 consisted of
         the following (000s omitted):

<TABLE>
<CAPTION>
                                                  2004       2003
                                               ---------  ----------
<S>                                            <C>        <C>
NOW accounts                                   $  34,868  $   32,736
Savings                                          122,947      62,443
Money market demand                               56,898      67,312
Time:
   $100,000 and over                              63,859      62,030
   Under $100,000                                 75,081      73,055
                                               ---------  ----------
              Total interest-bearing deposits  $ 353,653  $  297,576
                                               =========  ==========
</TABLE>

         The remaining maturities of certificates of deposit outstanding at
         December 31, 2004 are as follows (000s omitted):

<TABLE>
<CAPTION>
                                                  Under    $100,000
                                                $100,000   and Over
                                                --------   ---------
<S>                                             <C>        <C>
2005                                            $ 36,692   $  38,376
2006                                              22,437      12,559
2007                                              10,359       6,962
2008                                               2,786       3,528
2009                                               1,780       1,641
Thereafter                                         1,027         793
                                                --------   ---------

             Total                              $ 75,081   $  63,859
                                                ========   =========
</TABLE>

NOTE 7 - BORROWING ARRANGEMENTS

         The Corporation has an agreement with the Federal Home Loan Bank of
         Indianapolis under which the Corporation may obtain advances up to an
         aggregate amount of $26,000,000. The Corporation has provided a blanket
         pledge of all of the Corporation's residential mortgage loans as
         collateral on advances under this agreement.  Borrowings outstanding
         under this agreement totaled $5,000,000 at December 31, 2004 and 2003.
         The advance matures on January 22, 2011 with principal due at that
         time.  Interest-only payments are due monthly at a rate of 4.43 percent
         at December 31, 2004.

                      PSB Group, Inc. / 2004 Annual Report

18
<PAGE>

PSB GROUP, INC.

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2004, 2003, AND 2002

NOTE 8 - RETIREMENT PLANS

         The Corporation has a defined contribution 401(k), employee
         profit-sharing, and Employee Stock Ownership (ESOP) plan covering
         substantially all employees. Employer matching contributions are
         discretionary. The Corporation typically matches 100 percent of the
         first 3 percent of employee contributions and 50 percent of the next 3
         percent of employee contributions. Employer profit-sharing
         contributions are at the discretion of the Corporation's Board of
         Directors. Employer matching contributions to the plan were
         approximately $224,000, $245,000, and $229,000 during 2004, 2003, and
         2002, respectively. Employer profit-sharing contributions to the plan
         were approximately $100,000, $181,000, and $289,000 during 2004, 2003,
         and 2002, respectively.

NOTE 9 - FEDERAL INCOME TAXES

         The provision for federal income taxes reflected in the consolidated
         statement of operations for the years ended December 31, 2004, 2003,
         and 2002 consisted of the following (000s omitted):

<TABLE>
<CAPTION>
                                             2004        2003       2002
                                          ---------   ---------   --------
<S>                                       <C>         <C>         <C>
Current expense                           $   1,563   $   1,382   $  1,550
Deferred expense                                  -          75        500
                                          ---------   ---------   --------

   Total income tax expense               $   1,563   $   1,457   $  2,050
                                          =========   =========   ========
</TABLE>

         A reconciliation of the difference between total federal income tax
         expense and the amount computed by applying the statutory tax rates to
         income before income taxes follows:

<TABLE>
<CAPTION>
                                               Percent of Pretax Income
                                            ------------------------------
                                            2004         2003         2002
                                            ----         ----         ----
<S>                                         <C>          <C>          <C>
Amount computed at statutory rates           34           34           34
Decrease resulting from:
   Tax-exempt municipal interest             (9)          (5)          (5)
   Other                                      2           (3)          (1)
                                             --           --           --

              Reported tax expense           27           26           28
                                             ==           ==           ==
</TABLE>

                      PSB Group, Inc. / 2004 Annual Report

                                                                              19

<PAGE>

PSB GROUP, INC.

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2004, 2003, AND 2002

NOTE 9 -  FEDERAL INCOME TAXES (CONTINUED)

          The details of the net deferred tax asset (liability) at December 31,
          2004 and 2003 are as follows (000s omitted):

<TABLE>
<CAPTION>
                                                        2004              2003
                                                      --------          ---------
<S>                                                   <C>               <C>
Deferred tax assets:
   Provision for loan losses                          $    768          $     663
   Net deferred loan fees                                  225                277
   Accrued employee benefits                                42                 55
   Deferred compensation                                   164                151
   Other                                                     6                 98
                                                      --------          ---------

        Total deferred tax assets                        1,205              1,244

Deferred tax liabilities:
   Property and equipment                                  741                715
   Original issue discount                                 199                311
   Unrealized gains on investment securities
     available for sale                                     47                179
   Other                                                   131                 84
                                                      --------          ---------

        Total deferred tax liabilities                   1,118              1,289
                                                      --------          ---------
        Net deferred tax asset (liability)            $     87          $     (45)
                                                      ========          =========
</TABLE>

NOTE 10 - STOCK TRANSACTIONS

          On April 23, 2002, the stockholders approved a 10 percent stock
          dividend to holders of record of common stock of the Bank on April 30,
          2002. Earnings per share and cash dividends per share for all years
          provided have been adjusted in the accompanying consolidated financial
          statements to reflect the stock dividend.

          On October 31, 2003, the Corporation repurchased and retired 263,118
          shares of common stock for $6,134,000 from a director of the
          Corporation.

                    PSB Group, Inc. / 2004 Annual Report

20

<PAGE>

PSB GROUP, INC.

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2004, 2003, AND 2002

NOTE 11 - STOCK-BASED COMPENSATION

          During 2004, the Corporation adopted the PSB Group, Inc. 2004 Stock
          Compensation Plan and has reserved 450,000 shares of common stock for
          issuance under the plan. Vesting is to be specified at the time of
          grant and options will expire 10 years after the grant date. The
          exercise price of each option granted is equal to the fair market
          value of the Corporation's common stock on the date of the grant.

          In December 2004, the Corporation's Board of Directors approved 11,100
          stock option awards to be granted to various directors and officers.
          As of December 31, 2004, however, the Corporation has not issued any
          awards nor has a strike price been determined for the previously
          approved options.

NOTE 12 - OFF-BALANCE-SHEET ACTIVITIES

          CREDIT-RELATED FINANCIAL INSTRUMENTS - The Corporation is a party to
          credit-related financial instruments with off-balance-sheet risk in
          the normal course of business to meet the financing needs of its
          customers. These financial instruments include commitments to extend
          credit, standby letters of credit, and commercial letters of credit.
          Such commitments involve, to varying degrees, elements of credit and
          interest rate risk in excess of the amount recognized in the
          consolidated balance sheet.

          The Corporation's exposure to credit loss is represented by the
          contractual amount of these commitments. The Corporation follows the
          same credit policies in making commitments as it does for
          on-balance-sheet instruments.

          At December 31, 2004 and 2003, the following financial instruments
          were outstanding whose contract amounts represent credit risk (000s
          omitted):

<TABLE>
<CAPTION>
                                                     2004              2003
                                                  ----------        ----------
<S>                                               <C>               <C>
Commitments to grant loans                        $   16,583        $   19,392
Unfunded commitments under lines of credit            18,538            15,281
Commercial and standby letters of credit               4,801             2,073
</TABLE>

          At December 31, 2004, the Corporation had issued approximately
          $4,801,000 of financial standby letters of credit to guarantee the
          performance of various customers to third parties. The maximum amount
          of credit risk in the event of nonperformance by these parties is
          equivalent to the contract amount and totals $4,801,000.

                      PSB Group, Inc. / 2004 Annual Report

                                                                              21

<PAGE>

PSB GROUP, INC.

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2004, 2003, AND 2002

NOTE 12 - OFF-BALANCE-SHEET ACTIVITIES (CONTINUED)

          Commitments to extend credit are agreements to lend to a customer as
          long as there is no violation of any condition established in the
          contract. Commitments generally have fixed expiration dates or other
          termination clauses and may require payment of a fee. The commitments
          for equity lines of credit may expire without being drawn upon.
          Therefore, the total commitment amounts do not necessarily represent
          future cash requirements. The amount of collateral obtained, if it is
          deemed necessary by the Corporation, is based on management's credit
          evaluation of the customer.

          Unfunded commitments under commercial lines of credit, revolving
          credit lines, and overdraft protection agreements are commitments for
          possible future extensions of credit to existing customers. These
          lines of credit are generally collateralized and usually do not
          contain a specified maturity date and may not be drawn upon to the
          total extent to which the Corporation is committed.

          Commercial and standby letters of credit are conditional commitments
          issued by the Corporation to guarantee the performance of a customer
          to a third party. These letters of credit are primarily used to
          support public and private borrowing arrangements. Essentially all
          letters of credit issued have expiration dates within one year.

          At December 31, 2004, the Corporation maintained a credit loss reserve
          of approximately $64,000 relating to these standby letters of credit.
          Almost all of the standby letters of credit are secured and, in the
          event of nonperformance by the customers, the Corporation has rights
          to the underlying collateral provided including commercial real
          estate, physical plant and property, inventory, receivables, cash, and
          marketable securities.

          COLLATERAL REQUIREMENTS - To reduce credit risk related to the use of
          credit-related financial instruments, the Corporation might deem it
          necessary to obtain collateral. The amount and nature of the
          collateral obtained are based on the Bank's credit evaluation of the
          customer. Collateral held varies, but may include cash, securities,
          accounts receivable, inventory, property, plant, and equipment, and
          real estate.

NOTE 13 - LEGAL CONTINGENCIES

          Various legal claims also arise from time to time in the normal course
          of business which, in the opinion of management, will have no material
          effect on the Corporation's consolidated financial statements.

                      PSB Group, Inc. / 2004 Annual Report

22

<PAGE>

PSB GROUP, INC.

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2004, 2003, AND 2002

NOTE 14 - RESTRICTIONS ON DIVIDENDS, LOANS, AND ADVANCES

          Federal and state banking regulations place certain restrictions on
          dividends paid and loans or advances made by the Bank. The total
          amount of dividends that may be paid at any date is generally limited
          to the retained earnings of the Bank, and loans or advances are
          limited to 10 percent of the Bank's capital stock and surplus on a
          secured basis.

          At December 31, 2004, the Bank's retained earnings available for the
          payment of dividends was $18,471,000. Accordingly, $23,785,000 of the
          Corporation's equity in the net assets of the Bank was restricted at
          December 31, 2004. Funds available for loans or advances by the Bank
          to the Corporation amounted to $4,146,000.

          In addition, dividends paid by the Bank would be prohibited if the
          effect thereof would cause the Bank's capital to be reduced below
          applicable minimum capital requirements.

NOTE 15 - RELATED PARTY TRANSACTIONS

          In the ordinary course of business, the Corporation has granted loans
          to principal officers and directors and their affiliates amounting to
          $1,397,000 at December 31, 2004 and $1,028,000 at December 31, 2003.
          During the year ended December 31, 2004, total principal additions
          were $460,000 and total principal payments were $91,000.

          Deposits from related parties held by the Corporation at December 31,
          2004 and 2003 amounted to $1,969,000 and $924,000, respectively.

NOTE 16 - FAIR VALUE OF FINANCIAL INSTRUMENTS

          The fair value of a financial instrument is the current amount that
          would be exchanged between willing parties, other than in a forced
          liquidation. Fair value is best determined based on quoted market
          prices. However, in many instances, there are no quoted market prices
          for the Corporation's various financial instruments. In cases where
          quoted market prices are not available, fair values are based on
          estimates using present value or other valuation techniques. Those
          techniques are significantly affected by the assumptions used,
          including the discount rate and estimates of future cash flows.
          Accordingly, the fair value estimates may not be realized in an
          immediate settlement of the instrument. SFAS 107 excludes certain
          financial instruments and all nonfinancial instruments from its
          disclosure requirements. Accordingly, the aggregate fair value amounts
          presented may not necessarily represent the underlying fair value of
          the Corporation.

                      PSB Group, Inc. / 2004 Annual Report

                                                                              23

<PAGE>

PSB GROUP, INC.

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2004, 2003, AND 2002

NOTE 16 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

          The following methods and assumptions were used by the Corporation in
          estimating fair value disclosures for financial instruments:

          CASH AND CASH EQUIVALENTS - The carrying amounts of cash and
          short-term instruments approximate fair values.

          SECURITIES - Fair values for securities are based on quoted market
          prices.

          LOANS HELD FOR SALE - Fair values for loans held for sale are based on
          commitments on hand from investors or prevailing market prices.

          LOANS RECEIVABLE - For variable-rate loans that reprice frequently and
          with no significant change in credit risk, fair values are based on
          carrying values. Fair values for certain mortgage loans (e.g., one- to
          four-family residential), credit card loans, and other consumer loans
          are based on quoted market prices of similar loans sold in conjunction
          with securitization transactions, adjusted for differences in loan
          characteristics. Fair values for other loans (e.g., commercial real
          estate and investment property mortgage loans, commercial, and
          industrial loans) are estimated using discounted cash flow analyses,
          using interest rates currently being offered for loans with similar
          terms to borrowers of similar credit quality. Fair values for
          nonperforming loans are estimated using discounted cash flow analyses
          or underlying collateral values, where applicable.

          DEPOSIT LIABILITIES - The fair values disclosed for demand deposits
          (e.g., interest and noninterest checking, passbook savings, and
          certain types of money market accounts) are, by definition, equal to
          the amount payable on demand at the reporting date (i.e., their
          carrying amounts). The carrying amounts of variable-rate, fixed-term
          money market accounts and certificates of deposit approximate their
          fair values at the reporting date. Fair values for fixed-rate
          certificates of deposit are estimated using a discounted cash flow
          calculation that applies interest rates currently being offered on
          certificates to a schedule of aggregated expected monthly maturities
          on time deposits.

          LONG-TERM BORROWINGS - The fair values of the Corporation's long-term
          borrowings are estimated using discounted cash flow analyses based on
          the Bank's current incremental borrowing rates for similar types of
          borrowing arrangements.

          SHORT-TERM BORROWINGS - The carrying amounts of federal funds
          purchased, borrowings under repurchase agreements, and other
          short-term borrowings maturing within 90 days approximate their fair
          values. Fair values of other short-term borrowings are estimated using
          discounted cash flow analyses based on the Corporation's current
          incremental borrowing rates for similar types of borrowing
          arrangements.

                      PSB Group, Inc. / 2004 Annual Report

24

<PAGE>

PSB GROUP, INC.

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2004, 2003, AND 2002

NOTE 16 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

          ACCRUED INTEREST - The carrying amounts of accrued interest
          approximate fair value.

          OTHER INSTRUMENTS - The fair values of other financial instruments,
          including loan commitments and unfunded letters of credit, based on a
          discounted cash flow analyses, are not material.

          The estimated fair values and related carrying or notional amounts of
          the Corporation's financial instruments are as follows (000s omitted):

<TABLE>
<CAPTION>
                                                        2004                          2003
                                             -------------------------     -------------------------
                                              Carrying       Estimated      Carrying       Estimated
                                               Amount       Fair Value       Amount       Fair Value
                                             ---------      ----------     ----------     ----------
<S>                                          <C>            <C>            <C>            <C>
Assets:
   Cash and short-term investments           $  14,253      $   14,253      $  14,308     $   14,308
   Securities                                   91,125          91,125         47,619         47,619
   Loans                                       335,280         334,793        322,375        324,867
   Loans held for sale                           2,388           2,388            627            627
   Accrued interest receivable                   2,144           2,144          1,525          1,525

Liabilities:
   Noninterest-bearing deposits                 57,479          57,479         53,412         53,412
   Interest-bearing deposits                   353,653         354,235        297,576        298,088
   Federal funds purchased                           -               -          2,420          2,420
   FHLB borrowings                               5,000           4,998          5,000          5,000
   Accrued interest payable                        220             220            217            217
</TABLE>

NOTE 17 - REGULATORY MATTERS

          The Corporation (on a consolidated basis) and the Bank are subject to
          various regulatory capital requirements administered by federal
          banking agencies. Failure to meet minimum capital requirements can
          initiate certain mandatory and discretionary actions by regulators
          that could have a direct material effect on the Corporation's and the
          Bank's consolidated financial statements. Under capital adequacy
          guidelines and the regulatory framework for prompt corrective action,
          the Corporation and the Bank must meet specific capital guidelines
          that involve quantitative measures of their assets, liabilities, and
          certain off-balance-sheet items as calculated under regulatory
          accounting practices. The capital amounts and classification are also
          subject to qualitative judgments by the regulators about components,
          risk weightings, and other factors. Prompt corrective action
          provisions are not applicable to bank holding companies.

                      PSB Group, Inc. / 2004 Annual Report

                                                                              25

<PAGE>

PSB GROUP, INC.

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2004, 2003, AND 2002

NOTE  17 - REGULATORY MATTERS (CONTINUED)

            Quantitative measures established by regulation to ensure capital
            adequacy require the Corporation and the Bank to maintain minimum
            amounts and ratios (set forth in the following table) of total Tier
            I capital (as defined in the regulations) to risk-weighted assets
            (as defined) and Tier I capital (as defined) to average assets (as
            defined). Management believes, as of December 31, 2004 and 2003,
            that the Corporation and the Bank met all capital adequacy
            requirements to which they are subject.

            As of December 31, 2004, the most recent notification from the
            Bank's primary regulator categorized the Bank as well-capitalized
            under the regulatory framework for prompt corrective action. To be
            categorized as well-capitalized, an institution must maintain
            minimum total risk-based, Tier I risked-based, and Tier I leverage
            ratios as set forth in the following tables. There are no conditions
            or events since the notification that management believes have
            changed the Bank's category. The Corporation's and the Bank's actual
            capital amounts and ratios as of December 31, 2004 and 2003 are also
            presented in the table.

<TABLE>
<CAPTION>
                                                          For Capital            To Be Well-
                                        Actual         Adequacy Purposes         capitalized
                                  ----------------   ---------------------  ----------------------
                                   Amount    Ratio    Amount         Ratio   Amount          Ratio
                                  ---------  -----   --------        -----  --------         -----
<S>                               <C>        <C>     <C>             <C>    <C>              <C>
As of December 31, 2004:
   Total capital
      (to risk-weighted assets)
         PSB Group, Inc.          $  42,184  12.54%  $ 26,900 > or =  8.0%  $ 33,600 > or =   10.0%
         Peoples State Bank       $  41,459  12.33%  $ 26,900 > or =  8.0%  $ 33,600 > or =   10.0%
   Tier I capital
      (to risk-weighted assets)
         PSB Group, Inc.          $  38,790  11.54%  $ 13,500 > or =  4.0%  $ 20,200 > or =    6.0%
         Peoples State Bank       $  38,065  11.32%  $ 13,500 > or =  4.0%  $ 20,200 > or =    6.0%
   Tier I capital
      (to average assets)
         PSB Group, Inc.          $  35,790   8.62%  $ 18,000 > or =  4.0%  $ 22,500 > or =    5.0%
         Peoples State Bank       $  38,065   8.46%  $ 18,000 > or =  4.0%  $ 22,500 > or =    5.0%

As of December 31, 2003:
   Total capital
      (to risk-weighted assets)
         PSB Group, Inc.          $  40,367  13.27%  $ 24,300 > or =  8.0%  $ 30,400 > or =   10.0%
         Peoples State Bank       $  38,540  12.67%  $ 24,300 > or =  8.0%  $ 30,400 > or =   10.0%
   Tier I capital
      (to risk-weighted assets)
         PSB Group, Inc.          $  36,564  12.02%  $ 12,200 > or =  4.0%  $ 18,200 > or =    6.0%
         Peoples State Bank       $  34,743  11.42%  $ 12,200 > or =  4.0%  $ 18,200 > or =    6.0%
   Tier I capital
      (to average assets)
         PSB Group, Inc.          $  36,564   9.13%  $ 16,000 > or =  4.0%  $ 20,000 > or =    5.0%
         Peoples State Bank       $  34,743   8.67%  $ 16,000 > or =  4.0%  $ 20,000 > or =    5.0%
</TABLE>

                      PSB Group, Inc. / 2004 Annual Report

26
<PAGE>

PSB GROUP, INC.

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2004, 2003, AND 2002

NOTE 18 - CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY

          The following represents the condensed financial statements of PSB
          Group, Inc. (the "Parent") only. The Parent-only financial information
          should be read in conjunction with the Corporation's consolidated
          financial statements.

          The condensed balance sheet at December 31 is as follows (000s
          omitted):

<TABLE>
<CAPTION>
                                                             2004              2003
                                                          ----------        ----------
<S>                                                       <C>               <C>
ASSETS
   Cash at subsidiary bank                                $      580        $    1,754
   Investment in subsidiary                                   42,256            39,190
   Other                                                         145                67
                                                          ----------        ----------

        Total assets                                      $   42,981        $   41,011
                                                          ==========        ==========

STOCKHOLDERS' EQUITY                                      $   42,981        $   41,011
                                                          ==========        ==========

</TABLE>

The condensed statement of operations for the years ended December 31, 2004
and 2003 is as follows (000s omitted):

<TABLE>
<CAPTION>
                                                             2004              2003
                                                          ----------        ----------
<S>                                                       <C>               <C>
Operating income                                          $        -        $        -
Operating expense                                               (234)             (181)
                                                          ----------        ----------
   Loss - Before income taxes and equity in
     income of subsidiaries                                     (234)             (181)

Income tax benefit                                                80                62
                                                          ----------        ----------
   Loss - Before equity in income of subsidiaries               (154)             (119)

Equity in income of subsidiaries                               4,372             4,332
                                                          ----------        ----------
        Net income                                        $    4,218        $    4,213
                                                          ==========        ==========
</TABLE>

                      PSB Group, Inc. / 2004 Annual Report

                                                                              27

<PAGE>

PSB GROUP, INC.

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2004, 2003, AND 2002

NOTE 18 - CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY (CONTINUED)

          The condensed statement of cash flows for the years ended December 31,
          2004 and 2003 is as follows (000s omitted):

<TABLE>
<CAPTION>
                                                                                         2004                 2003
                                                                                      ----------           ----------
<S>                                                                                   <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                                                         $    4,218           $    4,213
   Adjustments to reconcile net income to net cash from
     operating activities:
        Equity in income of subsidiary                                                    (4,373)              (4,332)
        Net change in other assets                                                           (78)                 (67)
                                                                                      ----------           ----------

          Net cash used in operating activities                                             (233)                (186)

CASH FLOWS FROM INVESTING ACTIVITIES - Dividend from subsidiary                            1,050               10,044

CASH FLOWS FROM FINANCING ACTIVITIES
   Repurchase of common stock                                                                  -               (6,134)
   Cash dividends                                                                         (1,991)              (1,970)
                                                                                      ----------           ----------

          Net cash used in financing activities                                           (1,991)              (8,104)
                                                                                      ----------           ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                      (1,174)               1,754

CASH AND CASH EQUIVALENTS - Beginning of year                                              1,754                    -
                                                                                      ----------           ----------

CASH AND CASH EQUIVALENTS - End of year                                               $      580           $    1,754
                                                                                      ==========           ==========
</TABLE>

                      PSB Group, Inc. / 2004 Annual Report

28
<PAGE>

                                 PSB GROUP, INC.

                          MANAGEMENT FINANCIAL REPORT

                               DECEMBER 31, 2004

                      PSB Group, Inc. / 2004 Annual Report

                                                                              29
<PAGE>

Table of Contents

<TABLE>
<S>                                                                  <C>
Quarterly Results of Operations ...................................     31

Selected Financial Information ....................................     32

Management's Discussion and Analysis ..............................  33-43

Market Information ................................................     44
</TABLE>

                INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS

      Statements contained in this report which are not historical facts are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These
statements involve important known and unknown risks, uncertainties and other
factors and can be identified by phrases using "estimate," "anticipate,"
"believe," "project," "expect, " "intend," "predict," "potential," "future,"
"may," "should" and similar expressions or words. Such forward-looking
statements are subject to risk and uncertainties which could cause actual
results to differ materially from those projected. Such risks and uncertainties
include potential changes in interest rates, competitive factors in the
financial services industry, general economic conditions, the effect of new
legislation and other risks detailed in documents filed by the Company with the
Securities and Exchange Commission from time to time.

                      PSB Group, Inc. / 2004 Annual Report

30
<PAGE>

PSB GROUP, INC.

                                                 QUARTERLY RESULTS OF OPERATIONS

                                                                     (UNAUDITED)

      The following table sets forth certain unaudited income and expense and
per share data on a quarterly basis for the three-month periods indicated:

<TABLE>
<CAPTION>
                                                  YEAR ENDED DECEMBER 31, 2004
                                     ------------------------------------------------------
                                      1ST QTR       2ND QTR          3RD QTR        4TH QTR
                                     --------      --------         --------       --------
<S>                                  <C>           <C>              <C>            <C>
Interest income                      $  5,342       $ 5,503         $  5,735       $  6,053
Interest expense                        1,355         1,361            1,425          1,690
                                     --------       -------         --------       --------

Net interest income                     3,987         4,142            4,310          4,363
Provision for loan losses                  90           380              350            380
                                     --------       -------         --------       --------
Net interest income after
 provision for loan losses              3,897         3,762            3,960          3,983

Non-interest income                     1,424         1,326            1,492          1,584
Non-interest expense                    4,112         3,730            3,727          4,078
                                     --------       -------         --------       --------

Income before income taxes              1,209         1,358            1,725          1,489
Income Tax                                351           399              509            304
                                     --------       -------         --------       --------

Net Income                           $    858       $   959         $  1,216       $  1,185
                                     ========       =======         ========       ========
Earnings per share:

                Basic                $   0.30       $  0.33         $   0.42       $   0.41
                Diluted              $   0.30       $  0.33         $   0.42       $   0.41

Cash dividends declared per share    $   0.17       $  0.17         $   0.17       $   0.18
</TABLE>

<TABLE>
<CAPTION>
                                                  YEAR ENDED DECEMBER 31, 2003
                                     ------------------------------------------------------
                                      1ST QTR       2ND QTR          3RD QTR        4TH QTR
                                     --------       -------         --------       --------
<S>                                  <C>            <C>             <C>            <C>
Interest income                      $  5,645       $ 5,641         $  5,439       $  5,371
Interest expense                        1,386         1,368            1,340          1,369
                                     --------       -------         --------       --------

Net interest income                     4,259         4,273            4,099          4,002
Provision for loan losses                   -             -                -              -
                                     --------       -------         --------       --------

Net interest income after
  provision for loan losses             4,259         4,273            4,099          4,002

Non-interest income                     1,344         1,519            1,669          1,503
Non-interest expense                    4,155         4,471            4,322          4,050
                                     --------       -------         --------       --------

Income before income taxes              1,448         1,321            1,446          1,455
Income Tax                                396           358              407            296
                                     --------       -------         --------       --------

Net Income                           $  1,052       $   963         $  1,039       $  1,159
                                     ========       =======         ========       ========

Earnings per share:
                Basic                $   0.33       $  0.31         $   0.33       $   0.39
                Diluted              $   0.33       $  0.31         $   0.33       $   0.39

Cash dividends declared per share    $   0.15       $  0.15         $   0.17       $   0.17
</TABLE>

                      PSB Group, Inc. / 2004 Annual Report

                                                                              31
<PAGE>

PSB GROUP, INC.

                                                  SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
                                                                           FOR THE YEARS ENDED DECEMBER 31
                                                    --------------------------------------------------------------------------
                                                                               (Dollars in Thousands)
                                                      2004          2003          2002               2001              2000
                                                    ---------     ---------     ---------          ---------         ---------
<S>                                                 <C>           <C>           <C>                <C>               <C>
SUMMARY OF INCOME
     Interest income                                   22,633        22,096        24,421             28,649            30,847
     Interest expense                                   5,831         5,463         6,816             11,592            14,427
                                                    ---------     ---------     ---------          ---------         ---------

          Net Interest income                          16,802        16,633        17,605             17,057            16,420
     Provision (credit) for possible loan losses        1,200             -          (800)            (1,500)           (1,600)
                                                    ---------     ---------     ---------          ---------         ---------

     Net interest income after provision for
          possible loan losses                         15,602        16,633        18,405             18,557            18,020
     Non-interest income                                5,826         6,035         4,668              5,705             3,582
     Non-interest expense                              15,647        16,998        15,734             16,190            15,897
                                                    ---------     ---------     ---------          ---------         ---------

     Income before income tax expense                   5,781         5,670         7,339              8,072             5,705
     Income tax expense                                 1,563         1,457         2,050              2,252             1,584
                                                    ---------     ---------     ---------          ---------         ---------

     Net income                                         4,218         4,213         5,289              5,820             4,121
                                                    =========     =========     =========          =========         =========

PER SHARE DATA
     Basic earnings per common share                     1.46          1.36          1.68               1.85              1.45
     Diluted earnings per common share                   1.46          1.36          1.68               1.85              1.31
     Cash dividends                                      0.69          0.64          0.70               0.68              1.54
     Period end book value per common share             14.90         14.22         14.44              13.41             12.23
     Weighted average number of common
          shares outstanding                        2,885,073     3,103,497     3,148,191          3,148,191         2,848,191

SELECTED BALANCES (AT PERIOD END)
     Securities                                        91,125        47,619        87,498             69,262            67,749
     Loans, net                                       335,280       322,375       280,970            265,614           298,456
     Total assets                                     461,342       401,511       402,589            394,995           406,618
     Total deposits                                   411,132       350,988       340,780            345,555           368,711
     Borrowings                                         5,000         7,420        14,210              5,000                 -
     Total stockholders' equity                        42,981        41,011        45,473             42,222            34,845

SELECTED RATIOS
     Return on average assets                            0.99%         1.04%         1.33%              1.45%             1.03%
     Return on average total stockholders' equity       10.08%         9.30%        12.06%             14.80%            12.53%
     Avereage equity to average assets                   9.79%        11.23%        11.05%              9.79%             8.18%
     Net interest margin (1)                             4.19%         4.41%         4.74%              4.50%             4.32%
     Efficiency ratio (2)                               69.15%        74.99%        70.64%             71.13%            79.48%
     Dividend payout ratio (3)                             47%           47%           41%                37%               37%

ASSET QUALITY RATIOS
     Allowance for possible loan losses to:
          Ending total loans                             1.00%         1.19%         1.62%              2.06%             3.51%
          Non-performing assets                         84.62%        87.11%       110.73%            226.30%           139.04%
     Non-performing assets to ending total loans         1.18%         1.37%         1.46%              0.91%             1.79%
     Net loan charge-offs to average loans               0.49%         0.24%         0.06%              1.38%             0.35%

CAPITAL RATIOS
     Total capital to risk-weighted assets              12.54%        13.27%        15.58%             14.93%            12.69%
     Tier 1 capital to risk-weighted assets             11.54%        12.02%        14.32%             13.67%            11.43%
     Tier 1 capital to average assets                    8.62%         9.13%        10.20%              9.31%             8.28%
</TABLE>

(1) Net interest margin is net interest income divided by average earning
    assets.

(2) Efficiency ratio is calculated by dividing non-interest expense by the sum
    of net interest income plus non-interest income.

(3) Dividend payout ratio is calculated by dividing dividends paid during the
    period by net income for the period.

                      PSB Group, Inc. / 2004 Annual Report

32
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

      OVERVIEW. PSB Group, Inc. (the "Corporation") was formed on February 28,
2003 as a bank holding company for the purpose of owning Peoples State Bank (the
"Bank") pursuant to a plan of reorganization adopted by the Bank and its
stockholders. Pursuant to the reorganization, each share of Peoples State Bank
stock held by existing stockholders of the Bank was exchanged for three shares
of common stock of PSB Group, Inc. The reorganization had no consolidated
financial statement impact. Share amounts for all prior periods presented have
been restated to reflect the reorganization.

      The consolidated financial statements include the accounts of PSB Group,
Inc. and its wholly owned subsidiaries, Peoples State Bank and PSB Capital, Inc.
PSB Insurance Agency, Inc. and Universal Mortgage Company are wholly owned
subsidiaries of Peoples State Bank. PSB Capital, Inc. was formed in October,
2004. Through December 31, 2004, there had been no business transacted by PSB
Capital, Inc. All significant inter-company transactions are eliminated in
consolidation.

      Net income is derived primarily from net interest income, which is the
difference between interest earned on the Bank's loan and investment portfolios
and its cost of funds, primarily interest paid on deposits and borrowings. The
volume of, and yields earned, on loans and investments and the volume of, and
rates paid, on deposits determine net interest income.

      FINANCIAL CONDITION. Assets consist of loans, investment securities, bank
premises and equipment, cash and other operating assets. At December 31, 2004,
the Corporation had assets totaling $461 million compared to $402 million at
December 31, 2003. Total assets increased $59 million, or 14.7% during 2004.
Investment securities increased by $43.5 million and net loans increased by
$12.9 million. In addition, loans held for sale increased $1.8 million and bank
premises and equipment increased $1.4 million. The increase in premises and
equipment reflected the construction of a new branch office that opened in
January 2005. The increase in assets was funded primarily by a $60.1 million
increase in deposits. The introduction of a new savings product, our Prime
Savings Plus accounts, allowed us to increase total savings balances by $60.5
million. Our certificates of deposit balances increased $3.9 million and our NOW
balances increased $2.1 million. The increases were partially offset by a $10.4
million decrease in our money market balances. Total assets remained relatively
flat between 2002 and 2003 although there was a significant shift in the mix.
During 2003, approximately $40 million was shifted from investment securities to
loans.

      Loans - Loans consist of commercial, residential mortgage, and consumer
products offered in the communities served by the Bank. Total loans, net of the
allowance for loan losses, at December 31, 2004, increased to $335.3 million, up
$12.9 million, or 4% for the year. Loans, net of allowance for loan losses,
increased $41.4 million, or 14.7% from $281.0 million to $322.4 million at
December 31, 2002 and 2003, respectively.

      Commercial loans increased from $168.4 million to $189.9 million, an
increase of $21.5 million or 12.8% during 2004. During 2003, commercial loans
increased $22.8 million or 15.7% from $145.6 million at December 31, 2002. The
continued increase in 2004 was primarily the result of aggressive marketing, the
continued presence of the Bank in its market areas and the desire of customers
to deal with a community bank.

      1-4 family residential mortgage loan balances totaled $94.9 and $103.9
million as of December 31, 2004 and 2003, respectively. Residential mortgage
loan balances decreased $9 million or 8.7% during 2004. 1-4 family residential
loans increased $3.5 million or 3.5% during 2003. The decrease in 2004 was
primarily

                      PSB Group, Inc. / 2004 Annual Report

                                                                              33
<PAGE>

the result of management's decision to allow fixed rate mortgages to run-off and
replace them with adjustable rate loans. The volume of the new adjustable rate
loans only partially offset the run-off of the fixed rate loans. The increase in
2003 was due to management's decision to keep more loans in the Bank's
portfolio. Three and five year ARMs that were previously sold, were kept in the
Bank's portfolio in 2003.

      Consumer loans decreased $8.7 million or 32.2% in 2004 from $27.0 million
to $18.3 million. Consumer loans increased $2.3 million or 9.3% in 2003 from
$24.7 million to $27.0 million at December 31, 2003.

      The following table shows the details of the Bank's loan portfolio as of
the dates indicated. Mortgages on real estate include 1-4 family residential,
commercial real estate, construction loans, second mortgages and equity lines of
credit (see Note 4 to the financial statements). Loan balances are shown net of
unearned income.

<TABLE>
<CAPTION>
                                                                             December 31,
                                           ------------------------------------------------------------------------------
                                              2004             2003             2002              2001             2000
                                           ---------        ---------         ---------        ---------        ---------
                                                                           (in thousands)
<S>                                        <C>              <C>               <C>              <C>              <C>
Mortgages on real estate                   $ 272,756        $ 245,520         $ 197,540        $ 159,022        $ 170,585
Commercial                                    47,608           53,725            63,330           81,020          110,139
Consumer                                      18,310           27,017            24,732           31,157           26,622
                                           ---------        ---------         ---------        ---------        ---------
  Total Loans                              $ 338,674        $ 326,262         $ 285,602        $ 271,199        $ 307,346
                                           =========        =========         =========        =========        =========
</TABLE>

      The following table shows the loans by category as of December 31, 2004
and the period in which they mature. Loan balances are shown net of unearned
income.

<TABLE>
<CAPTION>
                                                                                              Loans maturing
                                                 One year                                    More than one year
                                     One year     to five    After five                    ---------------------
                                     or less       years        years           Total        Fixed     Variable
                                     --------    ---------    --------        ---------    ---------   ---------
                                                                          (in thousands)
<S>                                  <C>         <C>         <C>              <C>          <C>         <C>
Mortgages on real estate             $ 28,169    $ 156,906    $ 87,681        $ 272,756    $ 117,718   $ 126,869
Commercial                             15,604       27,723       4,281           47,608       11,214      20,790
Consumer                                  622       12,682       5,006           18,310       16,397       1,291
                                     --------    ---------    --------        ---------    ---------   ---------
  Total Loans                        $ 44,395    $ 197,311    $ 96,968        $ 338,674    $ 145,329   $ 148,950
                                     ========    =========    ========        =========    =========   =========
</TABLE>

      In 2002, Management concluded that reserves provided for in the allowance
for possible loan loss balance had exceeded the estimated reserves required. A
negative loan loss provision of $800 thousand was recorded in 2002 to reduce the
balance to an appropriate level. In 2003, Management believed the allowance for
loan losses to be at an appropriate level with no loan loss provision, positive
or negative. In 2004, as a result of a $12.4 million increase in total loans and
an increase in net charge-offs, management recorded a $1.2 million loan loss
provision in order to keep the allowance at an appropriate level. The Bank's
investment in impaired loans was $2.3 million at December 31, 2004 compared to
$1.5 million at December 31, 2003 and $2.7 million at December 31, 2002. The
Bank recorded net charge offs of $1.7 million in 2004 compared to $745 thousand
in 2003 and $153 thousand in 2002. The Bank's allowance for possible loan losses
to impaired loans was at a ratio of 148%, 260% and 183% as of December 31, 2004,
2003, and 2002, respectively. At December 31, 2004 the allowance for possible
loan losses totaled $3.4 million, or 1.0% of total outstanding loans.

                      PSB Group, Inc. / 2004 Annual Report

34
<PAGE>

The following table shows the detail of non-performing loans as of the dates
indicated.

<TABLE>
<CAPTION>
                                                                  December 31,
                                               --------------------------------------------------
                                                2004       2003       2002       2001       2000
                                               ------     ------     ------     ------     ------
                                                                 (in thousands)
<S>                                            <C>        <C>        <C>        <C>        <C>
Nonaccrual loans                               $2,297     $1,496     $2,746     $  281     $1,835
Loans past due 90 or more days                    717      1,189        306        602        845
Renegotiated loans                                586        808        907      1,585      2,663
                                               ------     ------     ------     ------     ------
Total non-performing loans                      3,600      3,493      3,959      2,468      5,343
Other real estate owned                           411        969        224          -        154
                                               ------     ------     ------     ------     ------
  Total non-performing assets                  $4,011     $4,462     $4,183     $2,468     $5,497
                                               ======     ======     ======     ======     ======

Total non-performing loans to total loans        1.06%      1.07%      1.39%      0.91%      1.72%
Total non-performing assets to total assets      0.87%      1.11%      1.03%      0.62%      1.35%
</TABLE>

      The Bank places loans in non-accrual status when, in the opinion of
management, uncertainty exists as to the ultimate collection of principal and
interest. The Bank has no foreign loans. Management knows of no loans which have
not been disclosed above which cause it to have doubts as to the ability of such
borrowers to comply with the contractual loan terms, or which may have a
material effect on the Bank's balance sheet or results from operations. Total
non-performing loans increased $107 thousand in 2004 to $3.6 million. Other real
estate decreased $558 thousand in 2004. As of December 31, 2004, other real
estate consists of seven properties. Other real estate is carried on the books
at the lower of, fair value less the estimated cost to sell, or, the carrying
amount of the loan at the date of foreclosure.

      The following table shows the allocation of the allowance for loan losses
by specific category as of the dates indicated.

<TABLE>
<CAPTION>
                                                              December 31,
             -------------------------------------------------------------------------------------------------------------
                     2004                  2003                  2002                   2001                 2000
             --------------------- --------------------- --------------------- --------------------  ---------------------
                                                         (in thousands)
                        Percent of            Percent of            Percent of            Percent of            Percent of
                         Loans in              Loans in              Loans in              Loans in              Loans in
                           Each                  Each                  Each                  Each                  Each
                         Category              Category              Category              Category              Category
             Allocated   to Total  Allocated   to Total  Allocated   to Total  Allocated   to Total  Allocated   to Total
              Amount       Loans    Amount       Loans    Amount       Loans     Amount      Loans     Amount      Loans
             ---------  ---------- ---------  ---------- ---------  ---------- ---------- ---------  ---------  ----------
<S>          <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Mortgages     $   839     80.50%    $   121      75.30%   $   396     69.60%    $   270     59.50%    $   656     55.90%
Commercial      1,478     14.10%      1,971      16.50%     2,476     21.90%      3,609     29.30%      7,873     35.50%
Consumer          551      5.40%      1,134       8.20%     1,345      8.50%      1,456     11.20%      1,623      8.60%
Unallocated       526       n/a         661        n/a        415       n/a         250       n/a         739       n/a
              -------    ------     -------     ------    -------    ------     -------    ------     -------    ------
  Total       $ 3,394    100.00%    $ 3,887     100.00%   $ 4,632    100.00%    $ 5,585    100.00%    $10,891    100.00%
</TABLE>

      Investment securities - Investment securities totaled $91.1 million as of
December 31, 2004 versus $47.6 million as of December 31, 2003, an increase of
$43.5 million. Each of these figures includes adjustments for fluctuations in
market values on available for sale securities (see Note 3 to the financial
statements). As interest rates began to rise, and increased funds became
available because of the success of our Prime Savings Plus product, our
investment portfolio was increased in 2004. Most of the 2004 purchases were in
relatively short-term securities that will provide liquidity and flexibility to
react to changing market conditions. Due to the low interest rate environment
and the lack of suitable replacement securities, the investment portfolio was
reduced during 2003. Proceeds from the securities that either matured or were
sold

                      PSB Group, Inc. / 2004 Annual Report

                                                                              35
<PAGE>

in 2003 were used to fund the increase in the loan portfolio. During 2004, the
Bank sold certain securities that generated $9 thousand in gains. This compares
to $163 thousand gained on the sale of securities in 2003.

      The following table shows the amortized cost and the fair market value of
the Bank's security portfolio as of the dates indicated.

<TABLE>
<CAPTION>
                                                           December 31,
                                  -----------------------------------------------------------
                                          2004                 2003                 2002
                                  -------------------  -------------------  -----------------
                                  Amortized    Fair    Amortized    Fair    Amortized  Fair
                                    Cost       Value     Cost       Value     Cost     Value
                                  ---------  --------  ---------  --------  ---------  ------
                                                         (in thousands)
<S>                               <C>        <C>       <C>        <C>       <C>        <C>
Available-for-sale securities:
U. S. treasury securities and
    obligations of other U.S.
    government agencies           $  68,619  $ 68,488  $  27,195  $ 27,359  $  45,148  45,727
Obligations of states and
    political subdivisions           19,670    19,930     17,274    17,627     28,603  29,267
Mortgage-backed securities                -         -          -         -          -       -
Corporate debt securities             1,000     1,008      1,000     1,009     10,793  10,941
Equities                              1,699     1,699      1,624     1,624      1,563   1,563
                                  ---------  --------  ---------  --------  ---------  ------
   Total available-for-sale
       securities                    90,988    91,125     47,093    47,619     86,107  87,498
                                  =========  ========  =========  ========  =========  ======
</TABLE>

      Maturity of the investment securities (at par value) and the weighted
average yield for each range of maturities as of December 31, 2004 are shown in
the table below. The yields on municipal securities have not been adjusted for
tax equivalence.

<TABLE>
<CAPTION>
                                                 From one to      From five to      After ten
                            One year or less     five years        ten years          years            Equity           Total
                            ----------------  ---------------   ---------------  ---------------   --------------   ---------------
                             Dollar   Yield    Dollar   Yield   Dollar   Yield    Dollar   Yield   Dollar   Yield    Dollar   Yield
                            --------  -----   --------  -----   -------  -----   --------  -----   -------  -----   --------  -----
                                                                (in thousands)
<S>                         <C>       <C>     <C>       <C>     <C>      <C>     <C>       <C>     <C>      <C>     <C>       <C>
Obligations of U.S.
  government agencies       $ 10,076   2.42%  $ 57,170   3.24%  $   676   5.35%  $      -      -   $     -      -   $ 67,922   3.14%
Obligations of states and
  political subdivisions      10,135   3.74%     3,240   7.44%    3,080   6.40%     3,080   5.82%        -      -     19,535   5.10%
Mortgage-backed securities         -      -          -      -         -      -          -      -         -      -          -      -
Corporate debt securities          -      -          -      -         -      -      1,000   5.29%        -      -      1,000   5.29%
Equity securities & others         -      -          -      -         -      -          -      -     1,699   4.38%     1,699   4.38%
                            --------  -----   --------  -----   -------  -----   --------  -----   -------  -----   --------  -----
  Total                     $ 20,211   3.08%  $ 60,410   3.47%  $ 3,756   6.21%  $  4,080   5.69%  $ 1,699   4.38%  $ 90,156   3.61%
                            ========  =====   ========  =====   =======  =====   ========  =====   =======  =====   ========  =====
</TABLE>

      Deposits - The Bank depends primarily upon customer deposits and
short-term borrowing for funds with which to conduct its business. Bank deposits
consist primarily of retail deposit products including checking and savings
accounts from individuals and businesses, NOW accounts, money market demand
accounts and time deposit accounts (CDs). Deposits totaled $411.1 million and
$351.0 million at December 31, 2004 and 2003, respectively, an increase of $60.1
million, or 17.1%. Savings deposits increased the most ($60.5 million) in 2004
followed by non-interest bearing demand ($4.1 million), certificates of deposit
($3.9 million) and NOW accounts ($2.1 million). These increases were partially
offset by a $10.4 million decrease in money market balances. During 2003,
deposits increased $10.2 million to $351.0 million at year end. Non-interest
bearing demand deposits saw the biggest increase ($5.9 million) in 2003 followed
by money market accounts ($3.8 million) certificates of deposit ($1.1 million)
and savings accounts ($790 thousand). NOW accounts decreased $1.4 million in
2003.

                      PSB Group, Inc. / 2004 Annual Report

36

<PAGE>

      Management relies on lower-interest bearing demand and savings deposit
accounts to fund significant portions of the Bank's operations. These accounts
greatly improve net interest margins because of the lower interest rates
expected by the customers. Non-interest bearing demand deposits plus savings
deposits increased $64.6 million in 2004.

      The following table shows the details of the Bank's deposit balances as of
the dates indicated.

<TABLE>
<CAPTION>
                                                    December 31,
                                        ------------------------------------
                                           2004         2003         2002
                                        ----------   ----------   ----------
                                                   (in thousands)
<S>                                     <C>          <C>          <C>
Noninterest bearing
   demand deposits                      $   57,479   $   53,412   $   47,550
NOW accounts                                34,868       32,736       34,088
Savings                                    122,947       62,443       61,653
Money market demand                         56,898       67,312       63,545
Time under $100,000                         75,081       73,055       74,485
Time over $100,000                          63,859       62,030       59,459
                                        ----------   ----------   ----------
   Total deposits                       $  411,132   $  350,988   $  340,780
                                        ==========   ==========   ==========
</TABLE>

      The following table shows the maturity breakdown of the Bank's time
deposits over $100,000 as of December 31, 2004.

<TABLE>
<CAPTION>
                                                        December 31, 2004
                                                        -----------------
                                                         (in thousands)
<S>                                                     <C>
Time Deposits Over $100,000
  Maturing in:
Less than three months                                     $   19,057
Three through six months                                        4,553
Six months through one year                                    14,766
Over one year                                                  25,483
                                                           ----------
   Total deposits                                          $   63,859
                                                           ==========
</TABLE>

      Borrowings - At December 31, 2004 and December 31, 2003 the Bank had
$5,000,000 in borrowings outstanding from the Federal Home Loan Bank of
Indianapolis (see Note 7 to the financial statements). This advance matures on
January 22, 2011. At December 31, 2004 the Bank had no short-term federal funds
purchased. This compares to $2,420,000 at the rate of 1.19% at December 31, 2003
and $9,210,000 at the rate of 1.38% at December 31, 2002.

      The following table shows the balance, term and interest rate of the
Bank's borrowings from the Federal Home Loan Bank.

<TABLE>
<CAPTION>
                                                      Outstanding as of
                                  ---------------------------------------------------------
                                     12/31/2004          12/31/2003           12/31/2002
                                  ---------------   ----------------------  ---------------
                          Year                      (dollars in thousands)
       Type             Matures    Dollar   Yield    Dollar       Yield     Dollar    Yield
---------------------   -------   --------  -----   --------      -----     --------  -----
<S>                     <C>       <C>       <C>     <C>           <C>       <C>       <C>
FHLB Advances            2011     $  5,000   4.43%  $  5,000       4.43%    $  5,000   4.43%
                                  --------   ----   --------      -----     --------  -----
  Total notes payable             $  5,000   4.43%  $  5,000       4.43%    $  5,000   4.43%
                                  ========   ====   ========      =====     ========  =====
</TABLE>

                      PSB Group, Inc. / 2004 Annual Report

                                                                              37

<PAGE>

      Contractual Obligations - The Corporation is party to certain contractual
financial obligations, including the repayment of debt and operating lease
payments. These future financial obligations are presented below:

<TABLE>
<CAPTION>
                                   Payments due - as of December 31, 2004
                      ---------------------------------------------------------------
                                              (in thousands)
                      0-12 Months  1-3 Years    4-5 Years     After 5 Years   Total
                      -----------  ---------    ---------     -------------  --------
<S>                   <C>          <C>          <C>           <C>            <C>
Operating Leases      $       453  $     478    $     248     $         378  $  1,557
FHLB Advances         $         -  $       -    $       -     $       5,000  $  5,000
                      -----------  ---------    ---------     -------------  --------
     Total            $       453  $     478    $     248     $       5,378  $  6,557
                      ===========  =========    =========     =============  ========
</TABLE>

      Off Balance Sheet Obligations - At December 31, 2004, the Corporation also
had commitments to extend credit of $35.1 million and a $4.8 million obligation
under a stand-by letter of credit.

      RESULTS OF OPERATIONS. Net income for the year ended December 31, 2004 was
$4.2 million, the same amount earned in 2003. Net interest income increased $169
thousand in 2004. The $1.2 million provision for loan losses compares to no
provision in 2003. In addition to the provision, 2004 net income was hurt by a
$209 thousand drop in non-interest income. These negatives, however, were mostly
offset by a $1.4 million reduction in non-interest expenses in 2004.

      Interest and fee income on loans increased approximately $1 million in
2004. This increase was the result of a $37.9 million increase in average loans
in 2004, plus rising interest rates in the second half of the year.

      Interest income on investments suffered in 2004, decreasing by $504
thousand. This decrease was due to a large extent to a $12.1 million decrease in
average investments in 2004. As interest rates began to rise and more funds were
being raised through our Prime Savings Plus accounts, more funds were invested
in securities. By year-end, our investment portfolio totaled $91.1 million
compared to $47.6 million at December 31, 2003.

      Interest expense increased $368 thousand in 2004. Of this increase, $282
thousand is due to increased savings balances. The Prime Savings Plus product
resulted in an increase in interest expense of approximately $360 thousand. This
was partially offset by a $78 thousand decrease in interest expense on our
passbook and statement savings products due to lower average rates paid in 2004.
Interest on money market balances increased $52 thousand and interest on
certificates of deposit increased $44 thousand. The increases were partially
offset by a $47 thousand decrease in interest on NOW accounts. Also, because of
increased federal funds borrowings during the year, interest on short-term
borrowings increased $36 thousand.

                      PSB Group, Inc. / 2004 Annual Report

38

<PAGE>

      The following table presents the Bank's consolidated balance of earning
assets, interest bearing liabilities, the amount of interest income or interest
expense attributable to each category, the average yield or rate for each
category and the net interest margin for the periods indicated. Interest income
is stated on a non-tax equivalent basis. Non-accrual loan balances are included
in the loan totals.

<TABLE>
<CAPTION>
                                                                      Year ended December 31,
                                     ----------------------------------------------------------------------------------------
                                                 2004                          2003                           2002
                                     ----------------------------  ----------------------------   ---------------------------
                                      Average                       Average                        Average
                                      Balance     Interest  Rate    Balance     Interest   Rate    Balance     Interest  Rate
                                     ----------  ---------  -----  ----------  ----------  ----   ----------  ---------  ----
                                                                   (dollars in thousands)
<S>                                  <C>         <C>        <C>    <C>         <C>         <C>    <C>         <C>        <C>
Federal funds sold                   $    2,845  $      51  1.79%  $    2,342  $       28  1.20%  $   12,961  $     220  1.70%
Investment securities - taxable      $   37,955  $   1,183  3.12%  $   42,566  $    1,433  3.37%  $   51,924  $   2,404  4.63%
Investment securities - tax-exempt   $   17,866  $     619  3.46%  $   25,366  $      873  3.44%  $   25,935  $   1,109  4.28%
Loans, net of unearned income        $  342,809  $  20,780  6.06%  $  306,511  $   19,762  6.45%  $  280,975  $  20,688  7.36%
                                     ----------  ---------         ----------  ----------         ----------  ---------
Total earning assets                 $  401,475  $  22,633  5.64%  $  376,785  $   22,096  5.86%  $  371,795  $  24,421  6.57%
                                     ==========  =========         ==========  ==========         ==========  =========
Interest bearing deposits            $  314,120  $   5,546  1.77%  $  295,119  $    5,214  1.77%  $  298,680  $   6,588  2.21%
Funds borrowed                       $    9,503  $     285  3.00%  $    6,886  $      249  3.62%  $    5,230  $     228  4.36%
                                     ----------  ---------         ----------  ----------         ----------  ---------
Total interest bearing liabilities   $  323,623  $   5,831  1.80%  $  302,005  $    5,463  1.81%  $  303,910  $   6,816  2.24%
                                     ==========  ---------         ==========  ----------         ==========  ---------
Net interest income                              $  16,802                     $   16,633                     $  17,605
                                                 =========                     ==========                     =========
Net interest spread                                         3.84%                                       4.05%            4.33%
Net interest margin                                         4.19%                                       4.41%            4.74%
</TABLE>

      The following table shows the dollar amount of changes in interest income
for each major category of interest earning asset, interest expense for each
major category of interest bearing liability and the amount of the change
attributable to changes in average balances (volume) or average interest rates
for the periods shown.

<TABLE>
<CAPTION>
                                              2004 compared to 2003                              2003 compared to 2002
                                      -----------------------------------------      ------------------------------------------
                                       Change      Change     Change                  Change      Change    Change
                                       due to      due to     due to     Total        due to      due to     due to     Total
                                        Rate       Volume      Mix       Change        Rate       Volume      Mix       Change
                                      -------     -------     ------    --------     -------     -------    -------   ---------
                                                                           (in thousands)
                                                                        --------------------
<S>                                   <C>         <C>         <C>       <C>          <C>         <C>        <C>       <C>
Federal funds sold                    $    14     $     6     $    3    $     23     $   (65)    $  (181)   $    54   $    (192)
Investment securities - taxable       $  (106)    $  (155)    $   11    $   (250)    $  (654)    $  (433)   $   116   $    (971)
Investment securities - tax-exempt    $     5     $  (258)    $   (1)   $   (254)    $  (218)    $   (24)   $     6   $    (236)
Loans, net of unearned income         $(1,195)    $ 2,341     $ (128)   $  1,018     $(2,557)    $ 1,879    $  (248)  $    (926)
                                      -------     -------     ------    --------     -------     -------    -------   ---------
Total interest income                 $(1,282)    $ 1,934     $ (115)   $    537     $(3,494)    $ 1,241    $   (72)  $  (2,325)
                                      -------     -------     ------    --------     -------     -------    -------   ---------
Interest bearing deposits             $     -     $   336     $   (4)   $    332     $(1,314)    $   (79)   $    19   $  (1,374)
Funds borrowed                        $   (43)    $    95     $  (16)   $     36     $   (39)    $    72    $   (12)  $      21
                                      -------     -------     ------    --------     -------     -------    -------   ---------
Total interest expense                $   (43)    $   431     $  (20)   $    368     $(1,353)    $    (7)   $     7   $  (1,353)
                                      -------     -------     ------    --------     -------     -------    -------   ---------
Net interest income                   $(1,239)    $ 1,503     $  (95)   $    169     $(2,141)    $ 1,248    $   (79)  $    (972)
                                      =======     =======     ======    ========     =======     =======    =======   =========
</TABLE>

      Management expects market interest rates to continue to rise during 2005.
Rising interest rates should have a positive impact on the Bank's net interest
income. The Bank's Asset/Liability Committee meets regularly to, among other
things, monitor interest rate fluctuations and to change product mix and pricing
in an effort to provide steady growth in net interest income.

                      PSB Group, Inc. / 2004 Annual Report

                                                                              39

<PAGE>

      The following table presents the changes in the allowance for loan losses
during the periods indicated.

<TABLE>
<CAPTION>
                                                        2004       2003          2002        2001       2000
                                                       -------   -------       -------     --------   --------
                                                                           (in thousands)
<S>                                                    <C>       <C>           <C>         <C>        <C>
Balance - Beginning of year                            $ 3,887   $ 4,632       $ 5,585     $ 10,891   $ 13,547

Loans charged off:
Mortgages on real estate                                  (287)     (175)          (32)          (4)       (27)
Commercial                                              (1,089)     (145)         (782)      (3,863)    (2,478)
Consumer                                                  (942)   (1,233)       (1,348)      (1,104)      (354)
                                                       -------   -------       -------     --------   --------
  Total Charge offs                                     (2,318)   (1,553)       (2,162)      (4,971)    (2,859)

Recoveries on loans previously charged off:
Mortgages on real estate                                     1         5             -            1         14
Commercial                                                 315       474         1,541          854      1,443
Consumer                                                   309       329           468          310        346
                                                       -------   -------       -------     --------   --------
  Total Recoveries                                         625       808         2,009        1,165      1,803

Provision for loan losses                                1,200         -          (800)      (1,500)    (1,600)
                                                       -------   -------       -------     --------   --------

Balance - End of year                                  $ 3,394   $ 3,887       $ 4,632     $  5,585   $ 10,891
                                                       -------   -------       -------     --------   --------
</TABLE>

      Non-performing loans increased $107 thousand to $3.6 million at December
31, 2004 (see page 5). Net charge-offs increased $948 thousand in 2004 to $1.7
million. After analysis of the allowance for loan losses, management determined
that a $1.2 million provision was necessary to keep the allowance for loan
losses at an adequate level. This compares to no provision in 2003, and a
reversal from the allowance of $800 thousand into income through negative loan
loss provisions in 2002.

      Non-interest income, which consists of service charges and other fees of
$5,826,000, $6,035,000, and $4,668,000 was recorded for the years ended December
31, 2004, 2003 and 2002, respectively. This represents a decrease of 3% in 2004
compared to an increase of 29% in 2003. The decrease in 2004 is due to a $247
thousand reduction in the gain on the sale of mortgage loans and a $154 thousand
decrease in the gain on the sale of securities. We did, however, realize a $121
thousand increase in deposit service charges as our service charges were
reviewed and revised in 2004. Also, we realized a $71 thousand increase in other
non-interest income in 2004. During 2003, the Bank realized a $1.4 million
increase in non-interest income due to a $759 thousand increase in deposit
service charges, most of which was related to our overdraft protection product
that was introduced late in 2002. In addition, during 2003 we realized a $338
thousand increase in the gain on the sale of mortgages over 2002 levels.

      Non-interest expense, which includes salaries and benefits, occupancy and
other operating expenses, decreased to $15.6 million in 2004 from $17.0 million
in 2003, a decrease of $1.4 million or 8.2%. Salary and benefits expense
decreased $1.3 million or 13% in 2004. Salaries were reduced by $667 thousand,
bonus and profit sharing expense was reduced by $407 thousand, overtime was
reduced by $57 thousand and fringe benefits dropped by $177 thousand. Occupancy
expenses increased $296 thousand in 2004. Increased depreciation and
amortization on equipment and software accounted for $106 thousand of this
increase and increased rent expense accounted another $93 thousand of the
increase. Legal and professional fees decreased $283 thousand and other
operating expenses decreased $81 thousand.

      LIQUIDITY AND CAPITAL RESOURCES. Liquidity is the measurement of the
Bank's ability to have adequate cash or access to cash to meet financial
obligations when due, as well as to fund corporate expansion or other
activities. The Bank expects to meet its liquidity requirements through a
combination of working capital provided by operating activities, attracting
customer deposits, advances under Federal Home

                      PSB Group, Inc. / 2004 Annual Report

40

<PAGE>

Loan Bank credit facilities, and possible future periodic sales of mortgages
into secondary markets. Management believes that the Bank's cash flow will be
sufficient to support its existing operations for the foreseeable future.

      Net income and depreciation and amortization continue to be the primary
sources of cash from operating activities. During 2004, net income provided $4.2
million of cash compared to $4.2 million during 2003 and $5.3 million during
2002. Depreciation and amortization was a non-cash expense totaling $1.2 million
for the year ended December 31, 2004, $1.1 million in 2003 and $1.0 million in
2002. These non-cash items had been included in net income for purposes of
calculating the results of operations during the respective years, and therefore
are added to or subtracted from net income in determining cash flow from
operating activities.

      The primary uses of cash for the Bank are the funding of customer loans,
purchase of investment securities and the repayment of customer deposits. The
Bank's primary sources of cash are customer deposits, proceeds from the maturity
or sale of investment securities, repayment of loans, and advances on borrowings
from the Federal Home Loan Bank, of which the Bank cannot exceed $26 million.
During 2004, the Bank had a net cash outlay of $14.1 million from the increase
in the loan portfolio. This compares to a net cash outlay of $41.4 million in
2003 and $14.6 million in 2002.

      The Bank purchased $74 million, $16 million and $63 million in securities
during 2004, 2003, and 2002, respectively. Securities sales or maturities
totaled $29.6 million, $53.9 million and $44.4 million respectively, for each of
those periods.

      The Bank experienced a net increase in deposits of $60.1 million in 2004
compared to a net increase in customer deposits of $10.2 million in 2003 and a
net decrease of $4.8 million in 2002. The Bank used $2.4 million to pay down
borrowings in 2004 compared to $6.8 million in 2003, and $9.2 million that was
provided by increased borrowings in 2002.

      The Corporation had capital of approximately $43 million at December 31,
2004, a $2 million increase over December 31, 2003. The change was the result of
$4.2 million in net income, offset by $2 million in dividends paid and a $257
thousand drop in the market value of securities available for sale. In 2003, the
capital level of the Corporation was reduced $4.5 million to $41 million. The
main reason for the reduction in capital was the repurchase of 263,118 shares of
common stock for $6,134,000 in October, 2003. At December 31, 2004, the ratio of
stockholders' equity to total assets was 9.3% compared to 10.2% at December 31,
2003. The capital levels of the Bank and the Corporation exceed the minimum
guidelines for being considered well capitalized (see note 17 to the financial
statements). Management believes the capital levels will be adequate to, among
other things, fund banking activities for the foreseeable future.

      At December 31, 2004, the Bank held cash and cash equivalents of
approximately $14 million and the entire investment portfolio of $91.1 million
was classified as available-for-sale. The estimated market value of the
available-for-sale securities exceeded amortized cost by approximately $137
thousand at December 31, 2004.

      The primary impact of inflation on the Corporation's operations is
increased asset yields, deposit costs and operating overhead. Unlike most
industrial companies, virtually all of the assets and liabilities of a financial
institution are monetary in nature. As a result, interest rates generally have a
more significant impact on a financial institution's performance than they would
on non-financial companies. Although interest rates do not necessarily move in
the same direction, or to the same extent, as the prices of goods and services,
increases in inflation generally have resulted in increased interest rates. The
effects of inflation can magnify the growth of assets and if significant,
require that equity capital increase at a faster rate than would otherwise be
necessary.

                      PSB Group, Inc. / 2004 Annual Report

                                                                              41

<PAGE>

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      To a great extent, the Corporation's operating strategies focus on
asset/liability management. The purpose of its Asset/Liability Management Policy
is to provide stable net interest income growth while both maintaining adequate
liquidity and protecting the Bank's earnings from undue interest rate risk. The
Bank follows its Asset/Liability Management Policy for controlling exposure to
interest rate risk. The Asset/Liability Management Policy is established by
Management and is approved by the Board of Directors. In order to control risk
in a rising interest rate environment, Management's strategy is generally to
shorten the average maturity of the investment portfolio, thereby making the
portfolio more liability sensitive. Because of loan repayments, the investment
securities due to mature in 2005 and available lines of credit, management
believes the Bank is sufficiently liquid.

      The Asset/Liability Management Policy also is designed to maintain an
appropriate balance between rate-sensitive assets and liabilities in order to
maximize interest rate spreads. The Bank monitors the sensitivity of its assets
and liabilities with respect to changes in interest rates and maturities and
directs the allocation of its funds accordingly. The strategy of the Bank has
been to maintain, to the extent possible, a balanced position between assets and
liabilities and to place appropriate emphasis on the sensitivity of its assets.

      The following table sets forth the estimated maturity or re-pricing and
the resulting interest sensitivity gap, of the Bank's interest-earning assets
and interest-bearing liabilities at December 31, 2004 and the cumulative
interest sensitivity gap at December 31, 2004. The amounts in the table are
derived from internal data of the Bank and could be significantly affected by
external factors such as changes in prepayment assumptions, early withdrawals of
deposits and competition.

<TABLE>
<CAPTION>
                                           Less than three     Three months to    One to five   Due after five
                                               months        less than one year      years          years           Total
                                           ---------------   ------------------   -----------   -------------    ----------
<S>                                        <C>               <C>                  <C>           <C>              <C>
Interest earning assets:
  Securities (1) (2)                       $         3,781   $           16,714   $    55,557   $       15,073   $   91,125
  Loans                                            143,459               14,622       139,534           41,059      338,674
                                           ---------------   ------------------   -----------   --------------   ----------

    Total interest earning assets          $       147,240   $           31,336   $   195,091   $       56,132   $  429,799
                                           ===============   ==================   ===========   ==============   ==========

Interest bearing liabilities:
  Savings and interest bearing
   demand deposits                         $       214,713   $                -   $         -   $            -   $  214,713
  Time deposits                                     31,709               43,704        63,527                -      138,940
  Short term borrowings                                  -                    -             -                -            -
  Long term borrowings                                   -                    -             -            5,000        5,000
                                           ---------------   ------------------   -----------   -------------    ----------
    Total interest bearing liabilities     $       246,422   $           43,704   $    63,527   $        5,000   $  358,653
                                           ===============   ==================   ===========   ==============   ==========

Interest rate sensitivity gap - current    $       (99,182)  $          (12,368)  $   131,564   $       51,132   $   71,146
                                           ===============   ==================   ===========   ==============   ==========
Interest rate sensitivity gap - cumulative $       (99,182)  $         (111,550)  $    20,014   $       71,146
                                           ===============   ==================   ===========   ==============
Cumulative interest rate sensitivity
  gap as a percent of total assets                  -21.50%              -24.18%         4.34%           15.42%
                                           ===============   ==================   ===========   ==============
</TABLE>

(1) Equity investments have been placed in the 0-3 month category.

(2) Re-pricing is based on anticipated call dates, and may vary from contractual
maturities.

      Certain shortcomings are inherent in the method of analysis presented in
the foregoing table. For example, although certain assets and liabilities may
have similar maturities and periods to re-pricing, they may react differently to
changes in market interest rates. Also, interest rates on assets and liabilities
may fluctuate in advance of changes in market interest rates, while interest
rates on other assets and liabilities may follow

                      PSB Group, Inc. / 2004 Annual Report

42

<PAGE>

changes in market interest rates. Additionally, certain assets have features
that restrict changes in the interest rates of such assets, both on a short-term
basis and over the lives of such assets. The gap table presented above is based
on stated maturities and next re-pricing dates and does not take into account
prepayment or withdrawal assumptions. In the event of a change in market
interest rates, prepayments and early withdrawals could cause significant
deviation from the stated maturities and re-pricings.

      According to the traditional banking industry static gap table set forth
above, the Bank was liability sensitive with a negative cumulative one-year gap
of $111.6 million or 24% of interest-earning assets at December 31, 2004. In
general, based upon this analysis, and the Bank's mix of deposits, loan and
investments, increases in interest rates would be expected to result in a
decrease in the Bank's net interest margin. However, a different tool, an
interest sensitivity model, is the primary tool used in assessing interest rate
risk, by estimating the effect that specific upward and downward changes in
interest rates would have on pre-tax net interest income. Key assumptions used
in the model include prepayment speeds on mortgage related assets; changes in
market conditions, loan volumes and pricing; and management's determination of
core deposit sensitivity. These assumptions are inherently uncertain and, as a
result, the model can not precisely predict the impact of higher or lower
interest rates on net interest income. Actual results will differ from simulated
results due to timing, magnitude and frequency of interest rate changes and
changes in other market conditions.

      Based on the December 31, 2004 simulation, the Company is in a position to
benefit from the rising interest rates that are anticipated. Based on the
position of the balance sheet and management's assumptions concerning core
deposit sensitivity and other assumptions, net interest income is forecasted to
increase as interest rates rise.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

      ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is calculated
with the objective of maintaining a reserve sufficient to absorb estimated
probable loan losses. Loan losses are charged against the allowance when
management believes loan balances are uncollectible. Subsequent recoveries, if
any, are credited to the allowance. Management's determination of the adequacy
of the allowance is based on periodic evaluations of the loan portfolio and
other relevant factors. This evaluation is inherently subjective as it requires
an estimate of the loss content for each risk rating and for each impaired loan,
an estimate of the amounts and timing of expected future cash flows and an
estimate of the value of collateral.

      A loan is considered impaired when, based on current information and
events, it is probable that the Bank will be unable to collect the scheduled
payments of principal and interest when due, according to the contractual terms
of the loan agreement. Factors considered by management in determining
impairment include payment status, collateral value and the probability of
collecting principal and interest payments when due. Impairment is measured on a
loan-by-loan basis for commercial and construction loans by either the present
value of expected future cash flows discounted at the loan's effective interest
rate, the loan's obtainable market price, or the fair value of the collateral if
the loan is collateral dependent. Large groups of homogeneous loans are
collectively evaluated for impairment. Accordingly, the Bank does not separately
identify individual consumer and residential loans for impairment disclosures.

      ACCOUNTING FOR GOODWILL - Effective January 1, 2002, the Corporation
adopted Statement of Financial Standard No. 142, "Goodwill and Other Intangible
Assets" (SFAS 142), which changes the Corporation's accounting for goodwill and
other intangible assets. Generally, intangible assets that meet certain criteria
are recognized and subsequently amortized over their estimated useful lives.
Goodwill and intangible assets with indefinite lives are not amortized. However,
such assets are tested for impairment at adoption of SFAS 142 and at least
annually thereafter. The adoption of SFAS 142 resulted in an increase in net
income for 2002 of approximately $164,000 due to a decrease in amortization
expense. No impairment loss was recorded upon the adoption of SFAS 142 in 2002,
nor was any impairment loss was recorded in 2003 or 2004.

                      PSB Group, Inc. / 2004 Annual Report

                                                                              43

<PAGE>

MARKET INFORMATION

The table below shows, for the periods indicated, the high and low prices for
common stock in the over-the-counter market of which PSB Group, Inc. is aware.
This information was obtained from a third-party reporting service and while we
believe the information is correct, we do not warrant its accuracy. These
quotations may represent inter-dealer prices without retail mark-ups, mark-downs
or commissions and do not necessarily represent actual stock transactions. There
is not an active market for the common stock of PSB Group, Inc.

<TABLE>
<CAPTION>
     2004           HIGH        LOW      DIVIDEND DECLARED
--------------    --------    --------   -----------------
<S>               <C>         <C>        <C>
FIRST QUARTER     $  23.75    $  20.85       $    0.17
SECOND QUARTER    $  22.50    $  18.10       $    0.17
THIRD QUARTER     $  21.00    $  17.65       $    0.17
FOURTH QUARTER    $  22.50    $  18.75       $    0.18
</TABLE>

<TABLE>
<CAPTION>
     2003            HIGH        LOW     DIVIDEND DECLARED
--------------    ---------   --------   -----------------
<S>               <C>         <C>        <C>
FIRST QUARTER     $  16.58    $  15.25       $    0.15
SECOND QUARTER    $  22.00    $  15.38       $    0.15
THIRD QUARTER     $  22.50    $  20.00       $    0.17
FOURTH QUARTER    $  23.75    $  20.25       $    0.17
</TABLE>

On December 31, 2004, PSB Group, Inc. had 427 holders of record of its common
stock. The stock is quoted on the OTC Bulletin Board under the symbol "PSBG.OB".
Howe Barnes Investments, Inc. and Monroe Securities, Inc. are market makers in
the stock.

Contact Information:

Nick Bach, Vice President                 Russel Feltes
Howe Barnes Investments, Inc.             Monroe Securities, Inc.
222 Riverside Plaza                       343 West Erie Street, Suite 410
Chicago, IL 60606                         Chicago, IL  60610
(800) 800-4693                            (800) 766-5560
www.howebarnes.com                        www.monroesecurities.com

      ANNUAL MEETING OF SHAREHOLDERS

THE ANNUAL MEETING OF THE SHAREHOLDERS OF PSB GROUP, INC. WILL BE HELD AT 2:00
PM, TUESDAY, APRIL 26, 2005 AT THE FOLLOWING LOCATION:

UKRAINIAN CULTURAL CENTER
26601 RYAN ROAD
WARREN, MI  48089

SHAREHOLDERS ARE INVITED TO ATTEND.

                      PSB Group, Inc. / 2004 Annual Report

44